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POLITICAL DECEPTIONS AND DELUSIONS. 

By 
Thomas Carl Spelling. 

Author of "Law of Private Corporations" ; "Extraor- 
dinary Rehef" ; "Injunctions" ; "New Trial and Appellate 
practice"; "Trusts and Monopolies"; "Corporate Man- 
agement and By-Laws"; "Federal Safety Appliance 
Law" ; "Power of Congress over Interstate Commerce" ; 
"Bossism and Monopoly," etc.; Formerly Attorney 
to Interstate Commerce Commission and assistant to U. 
S. Attorney General. 

A work which is interesting and instructive and of 
Permanent Value to every citizen and student of social 
affairs, as affected by politics and legislation. Contains 
a clear exposition of Party uses and abuses ; also of Fed- 
eral laws affecting Citizens in their political and private 
Relations. 



Published by 

Carlton Book Supply 
New York 
Copyright, 191 3, by Thomas Carl Spelling. 

iii 



A. 



"P 



V 






DEC 29 191§ 



:i.A358913 



PREFACE 

To write a preface for one's own mental product is 
like introducing one's self to a strange audience. If it 
give the work a good send off, it performs the office of an 
advertisement ; if it speak of the merits of the work with 
undue modesty, it is of no practical value, and the time 
taken to write, as well as that taken to read it, is wasted. 

In our day a vast amount of fraud is practiced in every 
line of human activity. Clothes are made to sell, with lit- 
tle regard to their wearing qualities. Great factories are 
occupied by manufacturers of snide jewelry, which is ad- 
vertised as so many carats solid gold. Makers of surgi- 
cal appliances, like jackals pursuing a wounded horse, 
are on the trails of cripples, anxious to extort from them 
the last dollar, for contrivances at exhorbitant prices 
which soon break or fail to answer the purpose as adver- 
tised. Quacks prey on the sick and invalided by similar 
methods. People in cities, especially the poorer classes, 
are drained of their earnings in high prices for stale or 
non-nutritious foods, and poisoned with adulterated 
drugs. 

But the most dangerous and harmful of all the cheats 
and imposters are self-serving politicians and bogus 
statesmen. These are also hardest to deal with, because 
you must find them out before you can punish them, and 
it is a large task to reach and dispose of a crook or 
weakling in high life, after he has so capitalized his op- 
portunities as to make a creditable record, in one or more 



PREFACE 

matters of popular concern. The differences of opinion 
among, and inertia of, voters who are the trial jurors in 
such a case, must be reckoned with. Again, no one who 
is the mere writer of a book cares to attack in print the 
few who have been found out, because there are so many 
meriting exposure whose misdeeds are unknown. Such 
exposures would do little if any good, even if publishers 
could be found for them. 

Therefore, this book is not an attack upon individuals. 
Few names are used in it, and these only where neces- 
sary to complete an intelligent recital of facts and public 
records. Anyhow, intelligent honest readers can make 
the proper application of what is said, and other kinds 
of readers could not be influenced or separated from their 
idols by any form of discourse, however personal. 

If the author may properly refer to a particular merit 
of his effort, attention is called to the absence of vague- 
ness, and the presence of directness and certainty. The 
reader is not left in doubt as to the meaning in any part 
or detail. Impractical schemes for ballot reform and 
primary elections are unsparingly criticized; the proper 
uses as well as abuses of party organizations are dis- 
cussed in a positive direct way, and remedies not only 
suggested but formulated. Deceptions about railroad rate 
legislation and the work of the Interstate Commerce 
Commission are discussed with that freedom which a 
long deluded people should welcome. And when the 
Trust and Monopoly question is taken up the shams and 
subterfuges of political officeholders and lawmakers are 
unsparingly exposed. In full confirmation of all of 
which the body of the work itself is respectfully re- 
ferred to. Thomas Carl Spelling. 
New York, December, 1913. 



VI 



TABLE OF CONTENTS 

CHAPTER 

I Party Organizations and Conventions. 

II Ballot Laws. 

III Primary Election Laws. 

IV Laws Affecting Interstate Carriers. — The Hep- 

burn Act. 

V Laws Affecting Interstate Carriers. — Amend- 

ments of 1910 and 1912. 

VI Banking and Other Peculiar Phases of Railroad 

Business. — Further Criticism of Valuation 
Measure. 

VII Regulation of Restraints and Monopolies. — Gen- 

eral Principles. 

VIII Meaning of Standard Oil and Tobacco Company 

Decisions. 

IX Scheme for Reaching Monopolies through 

Amendment of Patent Laws. 

X Legislative Proposals of Mr. Lenroot. 

XI Other Objections to Lenroot Measure. 

XII Proposal of Mr. Smith for Federal Control of 

State Corporations. 

XIII Bills Containing Provisions for Creation of Com- 

mission. 

XIV What Congress Can Do. 

XV The Lobby and Its Inside Friends. 



vii 



POLITICAL DECEPTIONS 
AND DELUSIONS 

CHAPTER I 
PARTY ORGANIZATIONS AND CONVENTIONS 

Almost every thoughtful free-spoken man finds fault 
with existing methods of party rule. Those prompted 
by a desire for purer and more democratic government 
are not alone, nor do they alone have cause for com- 
plaint. Reward for party service is an inseparable in- 
cident of partisan rule prevailing everywhere in the 
United States. No matter what the system under which 
candidates are chosen, whether at wide-open direct pri- 
maries with plurality nominations, with or without con- 
ventions, or at the old machine-made primaries and boss- 
ruled conventions, the successful candidate having the 
disposal of offices and governmental employments oftener 
than otherwise closes his mind to considerations of party 
promotion and treats the patronage at his disposal as a 
private perquisite. Of course few of them ignore en- 
tirely the claims of good government, but most of them 
find it easy to reconcile the claims of public justice to 
the claims and interests of bosses, personal friends and 
favorites. 

And this system is as inimical to honest, courageous 
administration as it is to just and honorable partisanship. 

Let those who doubt the existence and maintenance of 
an exclusive class, not accessible to the ordinary partisan 



PARTY ORGANIZATIONS AND CONVENTIONS 

who is not a member of the cUque on the inside, however 
faithful and influential, note for a time how appointive 
powers are exercised by those whom their votes, and 
the votes they have influenced, have elected to patronage 
offices. Often the choicest and most responsible positions 
are given to those defeated for posts of honor and profit 
at the polls; and when these have been taken care of, 
others of the professional office-holding class who have 
lost jobs by change of administration, or for any other 
reason short of embezzlement, are preferred. The au- 
thor of an infamous cinch bill, with a record so bad that 
his boss dared not give him a renomination, is provided 
for, at a large salary. The corporation counsel resigns to 
become a candidate for a judgeship, failing in which, 
his successor gives him a position worth $25,000 a year. 
A judge is promoted to a higher judicial position carry- 
ing a large salary, and retains his status as an insider 
so as to place his son in a lucrative public office. A can- 
didate is beaten for a purely political state office, and 
is immediatly appointed a supreme court justice. 
Through influences never made public, corporation law- 
yers become congressmen, and from these positions are 
transferred to the federal judiciary, and in time promoted 
to the supreme bench. The honest, but guileless supporter 
of a candidate may obtain special recommendations from 
friends of good repute, and endorsements from hundreds 
of good citzens, but it all avails him nothing as against 
the smug insider or handy tool of the boss. 

The genesis of a thousand appointments would be a 
repetition of these, with slight variations. And so, gen- 
erally, a vacancy occurring any where or from any cause, 
we find that some relative or favorite of some one already 
holding a lucrative office, or standing near a boss, or who 
has ''made good" on some political work of questionable 

2 



PARTY ORGANIZATIONS AND CONVENTIONS 

character is boosted into place, and expected to pervert his 
official functions for the benefit of his sponsor, to the 
verge of, or beyond, legal limits, regardless of the public 

interest. 

When another election approaches, nominations are 
almost invariably made by both leading parties from the 
ranks of this same politically professional class, and these 
and some of the outsiders with "hopes deferred" go out to 
bamboozle the credulous partisan electorate with false 
pretense and gush. 

The people at large have but a faint conception of the 
far-reaching influence of the "corporation" lawyer in 
matters of legislation, procuring appointments to public 
office, in the administration of the laws, and in the con- 
duct of political campaigns. Usually the citizen of 
ordinary intelligence knows the name and personal ap- 
pearance of the bosses of both the leading parties. If he 
is a partisan and takes an interest in political action he 
usually comes in contact with the boss. But in the in- 
famous schemes of party politics, made respectable by 
professions of loyalty to some so-called party principle, 
there is a power beyond and above the boss, to wit: the 
public service corporation — usually several forms of it. 
Its visible representative — and there are usually one or 
more for each pubhc service corporation in each State or 
city — is the corporation lawyer. There are various 
methods by which he obtains admittance behind the screen 
of corporation vilUany and gets his name added to the 
payroll. He may happen to be related to, or intimate 
with, a judge who is a successful politician and an adept 
in covering his tracks. He may have adroitly managed 
some piece of boodling legislation as a member of the 
Legislature, or successfully done some crooked job before 

3 



PARTY ORGANIZATIONS AND CONVENTIONS 

a court, the benefits of which accrued to a public service 
corporation. In that case he has won his spurs, that is, 
has estabhshed the proper character and won favor, and 
is entitled to standing as a corporation tool — a corporation 
lawyer. It is not to be supposed that such real "char- 
acter" will alone entitle him to high rank or pay or 
permanent employment. These are reserved for the ras- 
cal of smooth deportment, oily tongue, respectable con- 
nections, moral, even religious, pretensions, with brains. 
Sad to relate, but true it is, that while not all the lawyers 
of great ability who are appointed to cabinet positions 
become the advisers and servants of monopolistic corp- 
orations, it must be conceded that such is often the case. 
Then look at the Icng list of senators elected by sub- 
servient and corrupt legislatures at the dictation of rail- 
roads and trusts, who, pretending to represent the people 
of the States in that body where sat such men as Clay, 
Webster, Benton, Thurman, Blaine and Hoar, simply 
guarded, for bribe money, called fees, the interests of the 
masters who had them elected. 

There was a time when some attention was paid to the 
declarations and promises contained in party platforms, 
but we have now reached an era when the platform be- 
comes functus officio at the closing of the polls on the 
night of election. At that time policy entirely supercedes 
party principle ; and party policy is simply the fiscal policy 
or programme prepared before those elected have been in- 
stalled by those who have financed, acting in concert with 
those who have successfully managed, the campaign. The 
measures enacted pursuant to the programme are advo- 
cated as expedient, patriotic, even benevolent, though per- 
chance inconsistent with the promises in reliance upon 
which the necessary votes to elect were obtained. In the 
next campaign a new set of declarations are platformed, 

"4 



PARTY ORGANIZATIONS AND CONVENTIONS 

based upon more recent performances, claimed and 
plausibly reasoned out to be promotive of public interests. 
In other words, a new set of promises are made, to be 
again disregarded, and pledges made to others than the 
electorate — pledges made in secret in consideration of 
campaign corruption funds, or upon even baser considera- 
tions — are substituted and fulfilled. 

Between elections, vast monopolies and aggregations 
of millionaires, called syndicates, conspire together and 
extract from toil and from every line of business hun- 
dreds of millions of dollars, keeping the people so busy 
barring the wolf of starvation from the door that they 
have little time to study political and economic questions. 
They only realize that they are being mercilessly taxed 
with the cost of living, utter an occasional complaint and 
go on enduring and guessing what the next turn of the 
screws will be, until the next election. Then one or both 
of the leading parties collects millions of dollars, hires 
the best talent in the land to go forth and orate upon 
non-esssentials, and an army of secret-service men to 
ascertain who and how many in each precinct, county, 
and State can be bribed, and how many can be cajoled, 
shamed, or browbeaten with a threat of party ostracism 
and how many recalcitrants can be coerced by threats of 
discharge from employment, or loss of business, into vot- 
ing the party ticket. The same corruption in office, the 
same betrayal of party promises, the same infamous 
methods of carrying elections are witnessed from year 
to year and repeated at one election after another. 

And many voters, who either know the facts or refuse 
to be enlightened, go on submitting and participating, 
voting the same old party ticket because their fathers 
voted it, or for some cheap bribe, or upon some other 
absurd pretext. 

5 



PARTY ORGANIZATIONS AND CONVENTIONS 

But all political action in this country has taken 
the form of great leading parties against each other. 
One might no more hope to get rid of one or the other, 
or all of these parties than to dispense with the tides of 
the ocean. So long as there are winds and solar and 
lunar forces there will be rising and receding tides. 
Likewise so long as there are prejudices local, class, racial 
and sectional, and clashing passion and interests, leader- 
ships and followings, the present party system, with 
partisan alignments of voters, will continue. The duty 
and interest of each voter is to become identified with 
one or the other of the leading parties, according to his 
fancy or belief, and seek to bring about a more honest 
and truly representative method of party government. 
The real misfortune that has befallen the people of this 
country, of which most other things complained of are 
the direct or indirect results, is a loss through party 
action of the means of self government. 

The insincerity noted in political leaders characterizes 
many influential organs of publicity. There are too 
many men and newspapers that condemn, in words in- 
dicating much heat and anger, the evil practices of money 
lords and corporations, but refuse when a measure of 
relief is offered to aid in securing its enactment and 
oppose all candidates who favor any such reforms. Where 
will one find better expressions of righteous wrath con- 
cerning wild speculations in Wall Street, encouraged and 
financed by the banks, or of the piracies of the monop- 
lies in coal, ice and other necessities, or of rebating and 
discriminations by the railroads, or of the delinquencies 
and extortions of public service corporations, than in the 
editorial columns of certain great newspapers? But 
when did any measure designed and adequate to afford 
a remedy, or any candidate, who, if elected could be 

6 



PARTY ORGANIZATIONS AND CONVENTIONS 

relied upon to bring about a genuine reform, receive 
their support? A true advocate of reform cannot be at 
the same time an apologist, any more than a trustworthy 
surgeon can be a mere palliator of symptoms. When 
Patrick Henry made his famous speech before the Vir- 
ginia convention, he did not attempt to minimize dangers 
or postpone the disclosure of true conditions. He 
warned his copatriots that "the enemy are already landed 
on our shores," and avowed that he was willing "to know 
the worst and provide for it." 

The party leader fears to stand for a radical reform 
which the other leaders of his party do not endorse, lest 
the latter take advantage of his temerity to outrun him 
in the race for office, or to unhorse him if he be already 
in the political saddle. So the owls, the trimmers and 
time servers of party take the measure of popular credul- 
ity and patience and enunciate platforms of non-essentials 
— called party doctrines or principles — and the so-called 
leaders, who are really mere camp followers, rehearse 
the song as it is set down to them and declaim speeches 
to fit and support these deceptive time-serving and vote- 
getting declarations. 

There are few republicans but will admit that some 
tariff reductions ought to be made, nor are there many 
democrats who will not admit that the total elimination 
of the protective principle from duties on imports would 
cause serious derangement to our industrial system. It 
is impossible to pin the spokesmen of either party down 
to any definite permanent tariff legislation which they 
would approve. Between the extremes there is much 
debatable ground — much room for debate about items 
and particular rates of duty, not one of which standing 
alone would materially affect the general interests of 
the people, whether the one or the other was adopted. 

7 



PARTY ORGANIZATIONS AND CONVENTIONS 

The tariff is therefore made the principle theme of polit- 
ical discussion for two reasons: (.1) because, being an 
historical issue between parties and one which, from its 
inherent character, never can be permanently settled, 
its discussion causes no widespread panic in any quarter, 
and (2) because the great public service corporations 
which, in the last analysis control the nominations of 
the dominant parties — the Republican party in the North 
and West and the Democratic party in the South — are 
not alienated from the support of candidates by such 
discussion. 

Observing the drift of partisan professions — a thing 
entirely different from party policies — and noting the 
utterances of the leaders, it is very difficult to find any 
proposition embodying a principle of national import 
distinctly urged on the one side and opposed on the other. 

Political parties, though not factors in original 
schemes of representative government, are institutional 
in all republics and in many limited monarchies ; and 
the party in ascendency is, or may be, for all practical 
uses, the government itself. Such being the case, in 
order that the representative phase and function of 
the government may be preserved, it is essential that 
the same phases and functions be preserved to parties. 
The office of a convention is to permit individual 
views of party policy, constituting for the time state 
policy, to be welded into a party platform or creed. 
Such is the generally approved method for governing 
voluntary associations, whether political, social or ben- 
evolent. Even religious organizations find periodical 
assemblages of delegates representing the laity essen- 
tial to their well being and permanency. Even these 
liave found it necessary to occasionally make changes 
in their declarations of doctrine at such meetings. 

8 



PARTY ORGANIZATIONS AND CONVENTIONS 

And though party conventions, as they have been 
heretofore conducted, are open to just criticisms, their 
evil practices do not justify their entire abolition. 
Their objectionable methods can be gotten rid of with- 
out the substitution of something not only more ob-" 
jectionable but totally destructive of government by 
representation. If the convention is to be abolished, 
then it were just as well that every statute giving 
status and sanction to political parties be repealed ; 
because, without the convention, the disruption of par- 
ties is inevitable. Party organization becomes co- 
herent and effective because of similar ideals, policies 
and principles among its membership. 

Now, it is wholly impracticable to establish direct 
primaries in any state without allowing plurality nom- 
inations. There would be only one alternative, and 
that would be a second primary in case of the failure 
of the voters at the first primary to register a ma- 
jority for any candidate for every office. A second 
primary to decide a single contest would be just as 
troublesome and expensive as if there had been a 
failure, at the first primary, to return a majority vote 
on every office contested for. Inasmuch as the great 
expense incident to official primaries conducted by the 
state, without reference to the possibility of a second 
or third primary for the same year, is strongly ob- 
jected to, it is clear that the taxpayers would not 
tolerate the latter, and that a direct primary without 
the intervention of a state convention involves plural- 
ity nominations. 

We are now at a stage of the discussion to inquire 
as to the meaning and practical workings of selec- 
tions for party candidates of those who succeed in 
obtaining few or many more votes than either of their 

9 



PARTY ORGANIZATIONS AND CONVENTIONS 

competitors; that is to say, secure nominations by a 
bare plurality, and of depending on candidates so 
nominated to meet and construct a platform of prin- 
ciples. We will first suppose that the voters en masse 
have chosen wisely and that the nominees are all men 
of honesty and intelligence. In the first place, each 
one would know by what arguments and entertained 
or professed beliefs he secured his nomination. Com- 
ing from different sections of the State or belonging 
to different business classes, it might be that no two 
would agree on any proposition of party policy. And 
it would rarely happen that the candidate for Gov- 
ernor, Lieutenant-Governor, and on down, would all 
agree on all questions. Either they would hopelessly 
and finally disagree and each make his own fight in 
his own way, or they would adopt a colorless, am- 
biguous platform. In either event party organization 
and discipline would end. Either the party would be 
torn to tatters by clashes of individual opinions, or, 
in the absence of a definite statement of principles, 
would die of inanition. 

But what of the candidates so nominated? Even 
if we suppose the voters to act without passion, with- 
out sectional bias, without personal favoritism or prej- 
udice, to exercise their best judgments, and to be un- 
influenced by evil practices or suggestions, still they 
must proceed without accurate and satisfactory knowl- 
edge as to the character and fitness of all except — 
and this only in cases of a minority of them — one or 
two, or, at any rate, part of those asking their votes 
at the primary. So proceeding, to expect that a ticket 
of the best or even of average material available to 
the party to be nominated, is to expect a miracle. It 

10 



PARTY ORGANIZATIONS AND CONVENTIONS 

would be as unreasonable as to expect a rifleman 
blindfolded to hit the bull's eye at the first fire. 

Some advocates of the direct primary, pure and un- 
defiled, strive to impart the impression that the direct 
primary guarantees regularity, strict official supervis- 
ion and the provision of safeguards against sinister 
practices. But the fact must not be overlooked that 
what is proposed when such a measure is offered, is 
that the statute shall provide merely the formal parts 
which relate to calling the primary, giving notice, filing 
certificates, printing ballots, providing election officers, 
ascertaining results, etc. As to the vital parts, such 
as procuring signatures to petitions, reaching and ap- 
pealing to voters and obtaining votes for particular 
candidates, these are all left to the voluntary untram- 
melled, unsupervised, unregulated action of individ- 
uals and groups of individuals. From the nature of 
the case, it could not be otherwise. 

Then we would have a primary which is, to use the 
language of the street, "wide open." Has the millen- 
ium arrived, or would every conceivable subterfuge, 
device and fraud be practiced by rich demagogues and 
plausible fakers to mislead, deceive and win the con- 
fidence of voters? As a rule, to which the excep- 
tions have been rare, the people, having time to re- 
flect, analyze and judge of men's characters, between 
nominations and elections, have avoided serious mis- 
takes in the election of men to fill the most important 
offices. In this they were immensely aided by two 
facts or conditions; first, the voting strength of the 
State was nearly equally divided between leading par- 
ties, so that the choice was limited to two, or at most 
three, candidates ; and, secondly, the party convention 
system has almost invariably evolved as candidates 

II 



PARTY ORGANIZATIONS AND CONVENTIONS 

men of prominence whose records, public and private, 
were already well known to the public, or might be 
easily ascertained and divulged during the campaign. 

The citation of experiments in western and south- 
ern States is misleading. In the States where conven- 
tions have been abolished, there are no large cities, 
nor any considerable friction between avocations and 
industries. The agricultural class in South Carolina 
and Nebraska is so predominating and controlling that 
a statute beneficial to that class must almost neces- 
sarily inure to the benefit of the merchant, manufac- 
turer and laborer. But the larger and more populous 
States contain many commercial and industrial classes 
so that sharp conflicts of interest on vital issues, the 
wrong settlement of which may immensely injure par- 
ticular interests, are constantly arising; and when 
they do arise a spirit of concession and compromise 
must be invoked. An outline of the method proposed 
for their settlement must be indicated by bodies au- 
thorized to speak for political parties, else the disagree- 
ments, jealousies and rival ambitions of individuals 
elected to constitute the State government will cause 
a fatal counterbalance and breakdown, more surely 
when the necessity for action is great than at any 
other time. Is this mere speculation? An historical 
dissertation would be here out of place; but decay 
and death overtook the Athenian and other ancient 
democracies from that sole cause. The New Eng- 
land provinces had to abandon the town meeting sys- 
tem for the solution of merely local problems. 

It could hardly be expected that a greater percentage 
of voters would participate at primary elections under 
the direct system than under existing systems; and 
it is well known that those who at present vote at 

12 



PARTY ORGANIZATIONS AND CONVENTIONS 

primaries have little interest in the administration of 
public office beyond the distribution of patronage. 
Suppose, having separate ballot boxes for the respect- 
ive parties, a public party test is required, the business 
element and the labor element will largely refuse to 
participate, and the nominations will be made by the 
same voters who now punctually attend primaries to 
carry out the orders of the boss in the election of 
delegates. 

In some of the southern States such a system is in 
operation and is found to give general, though not 
universal, satisfaction. It is tolerated there simply 
because practically all the voters belong to one over- 
mastering party, the minority party having but slight 
interest in the results of elections at any time. But 
great inconveniences are there observable. The whole 
stress of the campaign comes prior to the date fixed 
for nominations to be made, and the election that oc- 
curs months afterward is simply perfunctory. The 
cost of conducting the ante-primary, ante-convention, 
campaign is as great as that of holding the general 
election, and these expenses are therefore duplicated. 
The machinery for voting and counting and making 
returns from the primary are just as complicated, and 
the labor on the part of election and county officers 
is just as arduous as at a general election — and even 
more so, because at the latter there are fewer can- 
didates. The candidates for office in a given year 
must enter upon the campaign several months prior 
to the general election and at a most unseasonable 
time for both candidates and voters. These incon- 
veniences and drawbacks would be intensified and 
multiplied in any State or other political division where 

13 



PARTY ORGANIZATIONS AND CONVENTIONS 

elections are contested between parties of nearly equal 
strength. 

The difficulty and liability to make mistakes in 
voting under the direct nomination scheme suggest 
themselves but need not be farther noticed. All that 
is said in the next chapter by way of objection to 
the Australian ballot is applicable here. Nothing has 
been or can be proposed superior to the plan of electing 
delegates at primaries held for all parties at the same 
time and place, the delegates to meet in conventions 
and make nominations, which, being duly certified, are 
accepted by the officer whose duty it is to prepare 
and print the ballot. 

On the State party convention, composed of dele- 
gates properly and regularly chosen is cast, and such 
convention feels a responsibility equal to that imposed 
upon the law-making body. Under a wise and just 
primary system the party convention will be com- 
posed of a very high type of honesty and intelligence. 
But in a direct primary at which no limitation upon 
the number and character of candidates would be 
possible, honesty and intelligence would have no 
chance to afifect the result in the slightest degree. 
Without stopping to argue the proposition, the pro- 
ponents of any suggested direct primary measure may 
well be challenged to point out any way therein pro- 
vided, or possible, for the more intelligent and honest 
men in the State to come together and act in concert 
in the choice of a candidate for any office. 

Now, it must be admitted by all reasonable minds 
that no primary election law found in any State is 
entirely satisfactory. The form of a bill hereinafter 
given and explained ought to satisfy all who realize 
that a crisis has been reached on this subject which 

14 



PARTY ORGANIZATIONS AND CONVENTIONS 

can only be passed in a spirit of reason and concession. 
(See Chapter III.) 

Some claim that the specific thing desired is pub- 
licity of party expenditures. Others suggest that all 
we need and what is most needed is direct voting for 
candidates at party primaries, which was above dis- 
cussed. Some of the alleged reforms are of trivial 
importance, while others are positively objectionable. 
Some of them are based upon assent to the doctrine 
that all the powers and special privileges now given 
by law to party bosses and professional politicians 
belong to them beyond question or dispute, and others 
upon the impracticable design of overthrowing politi- 
cal parties, or defeating party candidates by inde- 
pendent voting, without taking away the enormous 
advantages given them by law. Another proposition 
is to limit expenditures for campaign purposes, the 
proponents forgetting that excessive expenditures, if 
an evil in other than a purely moral sense, is one 
that cannot be reached by laws, any more than other 
common vices of men can be so reached. 

The remedy of limiting expenditures and penalizing 
excesses, would, if enforced, merely aggravate and in- 
crease the evil aimed at. Conscientious candidates 
would scrupulously conform to such laws, thus giving 
every advantage to the old and corrupt practice of 
those who do not hesitate to make the purpose to win 
justify the means of winning. There should be no 
limit to legitimate expenditure for campaign purposes, 
while as to immoral or illegal expenditures, ways to 
make them will be found in spite of the most stringent 
laws, even if it be found necessary to commit perjury 
for their concealment. 

15 



CHAPTER II 
BALLOT LAWS. 

The registration, ballot boxes, ballots, casting up 
and making returns, etc., constitute the mechanism 
for selecting persons to hold and exercise govern- 
mental powers. Those selected become, for all prac- 
tical uses, the government itself. Obviously, when the 
machinery is being run by unscrupulous or indifferent 
employees, more highly paid for turning out a poor 
than for a good article, we need not be surprised at 
evil results. Nor can such employees, who find the 
use of the old so profitable, be expected to propose or 
welcome the substitution of new machinery. Bene- 
ficial changes must be brought about by other than 
those who make a business of practical politics and 
officeholding. 

We read in the newspapers the proceedings of va- 
rious assemblages of citizens, and either read or hear 
many speeches, all having for their object to teach the 
duty of giving more attention to public questions and 
of exercising an independent judgment upon them. 
But few of them ever come down to specifications or 
consent to co-operate with any one proposing a defi- 
nite plan of procedure. The party orators are fond of 
speaking of the "sturdy, patriotic, independent voter" 
as the salvation of the country. Under present condi- 
tions, they do not speak truly. The country is not 
saved by them, for they are unorganized, divided, and 

i6 



BALLOT LAWS 

deprived of their political rights, so that their votes are 
rendered ineffective by offsetting each other. Under 
the present regime of party government, the country 
is only saved from the fate which overtook other re- 
publics by the fear the party in power has of opposi- 
tion parties. But these politicians can so speak without 
fear of being called to account. If they desired to 
tell the real truth, and the whole truth, they would say 
that parties go just as far in abusing their privileges as 
they dare go, in view of the existence of rival par- 
ties. But they do not venture to thus commit them- 
selves, because the rule of regularity established by 
our accursed party system requires each organization 
man to swear by his party creed, whatever it may be, 
and to insist that the success of the party means the 
welfare of the State and nation. 

Some propose amending the ballot law by changing 
the form of the ballot so as to encourage independent 
voting at general elections. They persistently demand 
the Australian ballot, either in its original or unadul- 
terated form, or that it be slightly modified. Now, 
while the Australian ballot possesses advantages, it 
has serious disadvantages. The distinctive feature of 
the Australian ballot is the arrangement alphabetically 
of the names of all the candidates for each office, with- 
out any party designation whatever. At purely local 
elections, or those held in small cities of rural com- 
munities where party organization is not so strong 
or dominating, and few officers are elective, it is ideal. 
But take any large State or populous city, where there 
are several parties, each with a full set of candidates, 
as well as a lot of independent candidates, at each 
election. Voting on all the offices there is an almost 
insuperable task, even for the. most intelligent and 

17 



BALLOT LAWS 

painstaking voter. The ballot becomes as inconve- 
nient to handle in the contracted confines of the booth 
as would be a large wall-map in a bath-tub, and it is 
as much a study and as much trouble to pick out and 
vote for a candidate for each and every office as it 
would be to award a full list of prizes at a county 
fair. 

These are not mere conjectures or speculations. In 
California the Australian ballot was given its first trial 
in the United States. Li order not to give by legal 
provision an advantage to the candidate of one party 
for an office over that of another party, or over an in- 
dependent candidate, the alphabetical order was 
adopted. It may seem strange, but it is nevertheless 
true, that mere alphabetical position on the Austral- 
ian ballot proved to be of itself a great advantage to 
some candidates and corresponding disadvantage to 
others, especially where the office was some distance 
below the head of the ticket. In that State, notably in 
San Francisco, whether the name of a candidate for 
assessor, or superior judge, or supervisor, or other rela- 
tively unimportant office, commenced with "A" or 
"W" would often make a difference of thousands of 
votes. Ex-Chief Justice W. T. Wallace, who, after his 
reteirement from the Supreme bench was elected term 
after term to the office of Judge of the Superior Court, 
was defeated after the adoption of the Australian bal- 
lot by a justice of the peace of no pretensions and of scant 
qualifications through indifference in voting, merely 
because the successful candidate's name commenced 
with "B," a result which a large majority regretted. 

Knowing the difficulty of voting the ticket, public 
attention centres upon the head of the ticket, and vot- 
ers are indifferent and apathetic as to the rest of it. 

i8 



BALLOT LAWS 

While it required 30,000 votes to give a candidate for 
mayor a majority in San Francisco, the leading par- 
ties being almost equal, a district attorney, or even a 
county clerk, might be elected with 20,000, and a su- 
pervisor with 15,000 votes. 

Another serious objection was the difficulty of vot- 
ing the ballot so as not to invalidate it. The difficulty 
of avoiding mistakes need not be dwelt upon. Many 
mistakes occurred ; such, for instance, as voting for 
five candidates for Superior Judges where only four 
were to be elected, thus losing the entire vote on that 
office. After various unsuccessful efforts to remedy 
defects, a new official ballot was adopted, patterned 
after the present New York ballot, and in all material 
respects the same. It appears to be entirely fair to 
parties as well as to independents. If it is a little more 
difficult to vote for an independent candidate for a par- 
ticular office, while voting a party ticket, than to vote 
for the candidate for that office on the voter's party 
ticket, that is one of those inconveniences that cannot 
be remedied. The difficulty has been greatly exag- 
gerated, however.^ Those extremists who would by 
one fell swoop of legislation divorce everybody from 
parties underrate the intelligence of voters. 



19 



CHAPTER III 
PRIMARY ELECTION LAWS. 

A spirit of revolt against despotic methods of party 
government is encountered everywhere. Only those 
stand for the old order whose special interests, politi- 
cal or financial, have been or are expected to be pro- 
moted and benefited through its maintenance. 

The problem before the citizen is how to get rid 
of bossism and what is known as machine politics 
without disintegrating political parties and thus sub- 
stituting for organized effort toward good government 
a state of political chaos. What is most desired, and 
all that can be properly demanded, is that all the ad- 
herents of each party be given, in some form, equal 
voice in making nominations and constructing plat- 
forms. 

Many politicians are clamoring for that crude form 
of primary election at which each and every voter 
votes directly for the party candidate preferred by him 
for the nomination to each office. With this demand 
necessarily comes the demand for plurality nomina- 
tions. The objections to this method were discussed 
in a preceding chapter. The plan which will be now 
proposed and explained may be as correctly called a 
plan for direct nominations, minus the objectionable 
features of the "pure and unadulterated" brand as by 
any other name. It will give the voice and influence 

20 



PRIMARY ELECTION LAWS 

of each voter a chance, without eUminating conven- 
tions and destroying the autonomy of parties. The 
proneness of the people in their segregated and unor- 
ganized condition to make disastrous mistakes in 
bringing about nominations, even when operating 
through party machines by force of popular sentiment, 
has often been strikingly illustrated. We witness 
amazing indifference and credulity concerning the real 
characters of men who have succeeded in acquiring 
good reputations in political life, who, after attaining 
an ultimate goal, capitalize, to personal profit, the 
confidence and respect of friends and supporters, put- 
ting all the citizens of a great commonwealth to an 
Open shame. Such men would not be nominated at 
conventions composed of delegates elected at open 
and fair primaries, such as are hereinafter described, 
but would often succeed at direct primaries in the 
strict sense. 

Those who stand for reforms of party government 
cannot be too often reminded of deplorable conditions 
ilow existing. Unprincipled bosses and rings have 
been, as a rule, permitted by the f)eople to obtain con- 
trol of parties and monopolize the work of conducting 
primaries and caucuses. The place to begin the work 
of getting rid of the political autocrats who have thus 
seized our sovereignty at primary elections, and the 
only method of rendering the primaries effective for 
the purpose, is by opening these avenues of party con- 
trol to all who are affected by party action. But this 
does not argue for direct primaries dispensing with 
conventions, such as are contended for by demagogues 
and opportunists and such as would not only disinte- 
grate parties but destroy representative government. 

It must long since have occurred to many citizens 

21 



PRIMARY ELECTION LAWS 

that the germ of most of our political and economic 
abuses is the fact that the people have permitted the 
power of self-government to be wrested out of their 
hands by laws for party government which, while 
purporting to have been made by their representa- 
tives, were in fact made by professional politicians 
with no sympathy in common with the people, but with 
the design of perpetuating their own supremacy, and 
promoting their own financial interests. 

When the States began to recognize, in legislation, 
the political parties as legal entities entitled to con- 
sideration at the hands of the government, and as 
having distinct rights as such, then they began to de- 
prive the people of their power and to transfer it to, 
and vest it in, party bosses and political insiders. 

In most of the States there are primary election 
laws of one kind or another. But almost without ex- 
ception, these leave the machinery and details of the 
primary in the hands of party committees, upon the 
assumption that the latter have some legally vested 
rights which must be recognized and respected. Now 
we cannot get rid of political parties. If the leading 
parties of to-day were totally eliminated, others would 
arise to take their places. But their organization 
should be made as volatile as possible and legislation 
should provide that the adherents of a given party can 
take control at will, and transfer their support from 
one party to another, or to a new party, without hav- 
ing to make a public record of it. 

In the final analysis, the great need is effective legis- 
lation governing primary elections. In some of the 
States, the primary election law is as effective to keep 
the better qualified voters away from the primaries as 
if the bosses had put their heads and the heads of their 

22 



PRIMARY ELECTION LAWS 

lawyers together and framed it with that particular 
purpose in view, and probably that is the way it was 
often done. Such laws provide, in brief, that in order 
to vote at the primaries to be held to elect delegates 
for the purpose of making nominations to be voted 
for at any particular election, the voter must, upon 
registering for the last preceding election, or at any 
rate some period prior to the primary election, have 
designated the party whose candidates he intends to 
support at the election next after that, for the purpose 
of voting at which he is then registering. Such a re- 
quirement is an outrage upon citizenship and a dis- 
franchisement, with respect to the primary, of every 
conscientious voter. 

In the first place, a large proportion of voters are 
reluctant, for business and other good reasons, to have 
a public record made of their party beliefs and affilia- 
tions. In the second place, it is impossible for one to 
know whether his present party preference will con- 
tinue. He cannot anticipate what his party may do to 
forfeit or preserve his allegience. There is the still 
further objection that the enrollment is likely to be 
neglected on account of the voter's indifference with 
reference to candidates to be voted for at an election so 
far away. 

But the plan is objectionable primarily because it 
violates the secrecy of the ballot, in fact if not in law. 
And this is done, not for the benefit or convenience of 
the voter, but upon the false and vicious theory that 
political parties are associations entitled to protection 
by the State against the free exercise by the citizen of 
the privilege of transferring his preference from one 
party to another between elections. Also in keeping 
with this policy of State promotion of party organi- 

23 



PRIMARY ELECTION LAWS 

zation, separate ballot boxes are provided for the par- 
ties. 

We find plenty of men and organizations of men 
fighting with commendable zeal all forms of special 
privilege who see nothing wrong in thus, by State act, 
not only encouraging a division of voters into contend- 
ing armies of unreasoning partisanship, but of dis- 
franchising them at the most important of all elec- 
tions, unless they lend themselves by an overt act to 
the operation and enforcement of these statutes. In 
truth a special privilege of greater value, or which can 
be used more despotically and corruptly, can scarcely 
be conceived of than is thus conferred upon the bosses 
and machine politicians of the respective parties. 

The important advantage which a public party en- 
rollment gives the manipulators of the party machine over 
those organizations of a temporary character, formed to 
oppose boss rule, or to fight the regular organization, has 
never been publicly discussed, and probably has re- 
ceived very little private consideration. Bearing in 
mind that those who might otherwise be most in- 
clined to engage in a struggle against the regular or- 
ganization may have failed to enroll, the names and 
addresses of the limited number who have enrolled 
constitute a "mailing list" for the latter. So that any 
proposed opposition is hopeless at the start, because 
those in the political game the year round have al- 
ready arranged to hold at least a majority of those 
on the enrollment in line for the slate, to be prepared 
at tne fortuitous moment in secret. 

In some of the States, the law gives its exclusive 
sanction to delegates elected to conventions at what 
are known as caucuses, sometimes excepting certain 
cities. So that altogether, the vast majority of voters 

24 



PRIMARY ELECTION LAWS 

at the general election have no option except to vote 
for the candidates of one party or another as a whole, 
or to make a selection from the sets of candidates thus 
furnished, in the nomination of none of whom they 
participated, in any true sense. 

There are everywhere to be found associations of 
very intelligent and no doubt well-meaning men engaged 
in framing bills to do away with the party columns, 
but who give no thought to the real defect in the elec- 
toral system. They realize that ours is a government 
by parties, but they forget that party government be- 
gins, and its most important work ends, with the se- 
lection of party candidates. 

The motif of these reformers is to strike a blow at 
political parties by encouraging the independent 
voter. At the same time they propose to leave the in- 
dependent voter without any option unless one or the 
other of the party machines sees fit to furnish him a 
candidate worthy to receive his vote. What they 
should do is to direct their efforts to a reformation of 
the methods of party government, knowing, as they 
must, that government begins, not at the ballot box, 
where the general election is held, but with party ac- 
tion prior to the nomination of candidates. 

The writer hereof recently read a lengthy editorial 
in a leading daily newspaper, published in a State 
where the party column ballot is in use, deploring the 
fact that a voter was legally permitted to vote for all 
the nominees of his party by making a cross instead of 
being compelled to select from all the nominees of all 
the parties and the independent candidates and place 
a cross opposite the name of each candidate for whom 
he might wish to vote. Now, of course, that is all very 
fine in theory, and might work out very well if every 

25 



PRIMARY ELECTION LAWS 

voter knew something about the candidates, or even, 
like the editor, was a graduate of a university, or even 
of a high school. But unfortunately the bosses and 
newspapers have taken politics and political discus- 
sion so completely out of the hands of the people that 
a large percentage of voters become thoroughly dis- 
gusted with the whole business prior to election day, 
and would not go to the polls at all were it not a legal 
holiday and voting a pleasant diversion. Those who 
volunteer much public testimony about the characters 
and qualifications of candidates so directly and vio- 
lently contradict each other that the individual can 
easily justify himself in voting his straight party ticket 
on the ground that the proofs and arguments for and 
against doing so are about evenly balanced. This be- 
ing the case, why shouldn't the voter give the candidates 
of his own party the benefit of the doubt? 

But that particular newspaper, like many others, has 
persistently refused to support any fair primary elec- 
tion bill, or any proposed legislation which would give 
voters a chance to select party tickets. Its conduct 
amounts simply to the promotion of bossism and ma- 
chine politics. Its conduct is at par with that of a 
policeman standing by and witnessing the commission 
of arson and, instead of arresting the criminal, should 
allow him to escape, and then, after irreparable injury 
was done to the building, sound the fire alarm. 

And here is the point at which the State may well 
concern iteslf, at which the State ought to interfere. 
Why shouldn't a primary election be given the same 
legal sanction and have thrown around it the same 
safeguards as the general election? Being in reality 
the more important, why shouldn't the inspectors and 
judges be selected by the same officers who select the 

26 



PRIMARY ELECTION LAWS 

judges and inspectors for the general election? Why 
shouldn't the State and proper political subdivisions 
thereof bear the expense of holding the primary elec- 
tion, including the publication of notices, printing of 
ballots, etc. And finally, why should not all voters 
at the primary be required to deposit their ballots at 
the same polling place, on the same day and in the 
same box, and allowed to do so as secretly as at the 
general election? 

The true line of distinction lies between control and 
promotion. The State should control and regulate 
parties, but should never aid or promote them. And 
yet, in spite of this obvious principle, we find in the 
election laws of nearly all the States the provision for 
enrollment, stimulating, encouraging, yes, almost co- 
ercing, the electorate to form senseless party divisions, 
even for local and municipal elections. 

Every true progressive should consider that it is 
wholly immaterial in what name the best results of or- 
ganization are accomplished, whether in the name of 
the Republican, the Democratic or the Progressive 
party, or in some other name. These party names are 
in and of themselves powerful organizing forces. Why 
throw away the benefits resulting from this fact? The 
party name, standing alone, may be of no special sig- 
nificance. But there are millions of voters whb attach 
importance to these names, owing to historical asso- 
ciation and prejudice. It is ten times easier to convert 
or force by superiority of voting power, the voters to 
reformatory views, remaining, or getting inside these 
parties than to do so by the expedient of a new party 
or independent movement, which necessitates, at the 
outset, overcoming party pride and severing party 
ties. 

27 



PRIMARY ELECTION LAWS 

The people should demand of legislatures the enact- 
ment of laws which will give every voter full, fair and 
equal voice in the control and management of the party 
to which he adheres, with an opportunity to change 
his voting power from one party to another without 
being subjected to publicity, espionage, criticism, or 
ostracism for so doing. 

When the test comes at the polls, it is uniformly 
found that the most steadfast and unswerving par- 
tisans are the industrial forces. Indeed, it seems that 
the only part of our population who deny themselves 
the luxury of partisanship are the wealthier class. 
These are Democrats, Republicans, or Progressives, 
according to circumstances, — according to the politi- 
cal drift in the particular locality, or the favor or dis- 
favor shown by the respective parties, or candidates 
on party tickets, to invested, or investment seeking, 
capital. The workingman and the farmer, on the con- 
trary, usually feel that partyism is one of the few lux- 
uries in which he can well afford to indulge, seldom 
appreciating that, of all luxuries, its indulgence is the 
costliest. It is useless, however, to descant upon the 
folly of men tying themselves up to parties, perma- 
nently or temporarily. To do so would be a waste of 
words. The general belief that there exists some such 
thing as party fealty has been always entertained and 
always will be. 

But coming back to the real purpose of this dis- 
course, there can be no real liberty, nor any effective 
exercise of the right to vote, so long as present meth- 
ods of party government and present party practices 
are tolerated. In what direction, or to what end, 
therefore, should the political units, such as have been 
already mentioned, direct their efforts? To this there 

28 



PRIMARY ELECTION LAWS 

can be but one answer. They should seek to bring 
about more democratic methods of party management. 
Either organized labor, or the farmers of the country 
alone, if acting unitedly, could exercise sufficient power 
at primary elections to obtain and retain control of 
any political party. Instead of acting in unison to 
that end, they now go about their private af- 
fairs, refusing to participate in the primaries, or in 
any preliminary party action, until the tickets are made 
up, or, at any rate, until the men who are to make up 
the tickets have been selected by men in control of 
the party machines. Having thus played into the 
hands of the unscrupulous men, looking, not to labor, 
but to the most unfriendly among the employers of 
labor, not to the farmer, but to those who thrive on his 
toil, for the rewards of party service, they find, no 
matter what the pre-election professions of friendship 
by candidates, only disappointment. But how, after 
they have thus permitted their enemies to mark and 
stack the cards, can they expect a square deal? 

The passiveness of the industrial forces of society 
in politics is one of the inscrutable mysteries of to-day. 
Whatever be the destiny of others, the farmers, wage 
earners and salaried employees are generally destined 
to remain in this country, and if at death they leave 
children, these will also remain. They therefore have 
the greatest interest in the fate of our political insti- 
tutions. Loyalty to these institutions ought not in 
the minds of the toilers to be susceptible of a doubt. 
All the reasons that exist or suggest themselves for 
uniting their economic forces argue for solidarity for 
political reforms, and for opposition to reactionary 
tendencies. For like reasons they should, one and all, 
oppose corrupt political methods. Indeed, what is 

29 



PRIMARY ELECTION LAWS 

most needed in this country is not a revolution in the 
form of State government, but a change in meth- 
ods of party government. 

In every great work, whether it be a political move- 
ment or an industrial enterprise, there must be a right 
beginning. However desirable it might be, it would be 
futile to suggest that all the individuals of the classes 
just mentioned should move together with either one 
or the other of the leading parties. Fortunately that is 
not necessary. If all the Republicans among them 
would attend the Republican primaries, act together, 
vote only for true and honest representatives as dele- 
gates to conventions, and if all the Democrats and 
Progressives among them would attend the primaries and 
do likewise, they would be surprised at the progress 
which would be thus made in a brief space of time. 
Instead of organizing independent parties, they should 
organize primary election leagues. It is true, as al- 
ready stated, that the primary election laws in some 
of the States are framed for the advantage of profes- 
sional politicians and for the perpetuation of party ma- 
chines, and in others there are no primary election 
laws worthy the name whatever. When these condi- 
tions exist, such leagues should bend their efforts to 
securing the enactment of just laws, which will per- 
mit free and full participation of every voter at pri- 
mary elections. The trend of public opinion and sen- 
timent now runs strongly in favor of such legislation, 
and such effort would be along the lines of slightest 
resistance. It would not be difficult for the farmers 
and workingmen in any of the great States, acting in 
unison, to secure such legislation. 

Through such primary election laws as have just 
been described, parties, and through parties, govern- 

30 



PRIMARY ELECTION LAWS 

ments can be properly directed and controlled, but not 
otherwise. 

Everywhere there are constitutional guarantees of a 
secret ballot. In order to bring the primary election 
within such guaranty it is necessary that it be given 
the status and aspect of a general election, and that the 
legislation providing for it be given the form as well 
as the substance of general law affecting all voters 
alike in their political relations. Such elections should 
be given legal recogniton and governmental functions, 
State or local, as the case may be. The importance and 
far-reaching effect of a comprehensive workable pri- 
mary election law are appreciated by nearly all intel- 
ligent citizens. 

To accomplish the best results, the voting at the 
primary should be in all particulars by a secret bal- 
lot. No voter should be required to sign, or have his 
name entered upon an enrollment list or party roster, 
at the time of registering or at any other time. To 
require this is to deprive the voter of his constitutional 
guaranty of secrecy and to defeat the main purpose of 
the primary. The whole scheme and purpose of the 
enrollment is the perpetuation of the very evils that a 
comprehensive primary election law, such as is here 
advocated, is intended to terminate. 

The requirement of the enrollment arises from two 
false and groundless assumptions. First: That there 
is some such legal relation as membership in a party. 
Secondly: That parties themselves are entities in such 
legal sense as to entitle them to such protection against 
alien intrusion as the roster or party enrollment af- 
fords. 

The whole doctrine that political parties should not 
be entirely subordinated to the public good in its 

3? 



PRIMARY ELECTION LAWS 

broadest aspect is based upon the aforesaid baseless 
assumptions, pursuant to which party managers have 
sought to exclude, and have usually succeeded in ex- 
cluding from participation at primaries established by 
statute persons who do not meet certain requirements' 
prescribed by the party managers themselves, or who 
do not submit to certain prescribed tests for membership 
in the party. The fallacy of such contention clearly 
appears when those so insisting are asked to define 
membership in a political party. This is a thing that 
cannot be done so as to stand intelligent scrutiny. 

No recognition is given to political parties in the 
Federal Constitution, And in reality political parties 
do not exist as tangible entities. If one started out to 
locate, define and take the measure of the Republican, 
the Democratic, the Progressive, or any other party, 
where would he look for it? How could he define it? 
What are its powers or dimesions? Some lawyers, 
doing service as party hacks, if questioned on this sub- 
ject, will say, "Why, the party committee is what is 
known in law as a voluntary association." Even if 
that were true, it would not constitute the party which 
it assumes to represent such an association. Without 
statutory recognition not even the party committee 
would ever be entitled to a standing in any court as a 
legal entity. A voluntary association, in law, means 
a permanent association of individuals bound together 
by some form of mutual obligation which can be en- 
forced. But where can such obligation be found in a 
party committee? 

The view that a political party has status as a legal 
entity has caused some of those entertaining that view 
to make the most absurd and inconsistent applications 
of it. Thus a Cincinnati paper not very long ago con- 

32 



PRIMARY ELECTION LAWS 

demned the Wisconsin Legislature for the adoption 
of a stringent primary election law, and said : "This 
attempt to secure the election of Senators by popular 
vote is carrying to an extreme the current fad and 
heresy of legislative interference with private affairs 
of a political party, which is a purely voluntary organi- 
zation, not created or constituted by constitutions or 
statutes." The editor then proceeds to criticise law- 
makers generally for "tinkering" with the management 
of parties. It is obvious that this line of reasoning, if 
carried out, is a repudiation of the whole theory of 
popular sovereignty, and while upholding government 
by party, would limit party control to the will of party 
bosses. 

The safety of the State and immunity of citizenship 
from partisan tyranny require that parties stand with- 
out recognition at law as crystallized or identified or- 
ganisms. The popular conception of a party is its true 
status. It is understood to be a leadership and a fol- 
lowing moved during campaigns and controlled at 
elections by a common principle and design. Now that 
political parties are recognized as organized bodies 
entitled to standing before courts and legislatures, 
they have become really dangerous to the State. A 
party in control of the three branches of government 
constitutes to all practical intents and purposes the 
State itself, whereas, upon any true theory, though 
one party has elected its candidates to the legislative, 
executive and judicial departments, still the govern- 
ment as an organism remains independent and dis- 
tinct, and is not overshadowed and in effect super- 
seded by a party organization. 

Separate ballot boxes at the primaries should be dis- 
pensed with, and the voters of all parties should be 

33 



PRIMARY ELECTION LAWS 

allowed to deposit their ballots in the same box, on the 
same day and under the supervision of the same set of 
election officers. An official ballot should be printed 
for every registered voter by the proper local officers, 
with a blank space in which the voter may paste his 
ticket containing the names of candidates for delegates 
to any and all conventions of the party with which he 
chooses then and there to affiliate, he being limited to 
conventions of one party only. 

The privilege of voting at such primary should be 
free, fair and equal to all who are properly registered 
in the particular precinct. That is the constitutional 
right of every voter, and he should not be deprived of 
it by any statute ; nor can he be deprived of it by any 
statute that will stand strict, honest, and impartial 
scrutiny in the courts. 

It is said by the opponents of the change here pro- 
posed that every voter may now participate in party gov- 
ernment by complying with the conditions of the law. 
This is true in a certain sense; and until men can be 
elected who are willing to give the people decent pri- 
mary election laws, it is their duty to make the most 
of the opportunities afforded by existing laws, not- 
withstanding the great disadvantages under which 
they labor. 

In the main, the appended bill (see Appendix A) 
must speak for itself; but the more important things 
accomplished by it, and some of the party and other 
interests with which it does not interfere will be stated. 

1. It leaves the law governing registration un- 
touched, and leaves the proceedings at, and certifica- 
tion of the results of. State conventions as heretofore. 

2. Only registered voters can participate, nor can 
a voter vote for any candidate for delegate to more 

34 



iPRIMARY ELECTION LAWS 

than one party convention. But the same person may 
be a delegate to any number of conventions of the same 
party. This will enable a State convention, after nomi- 
nating candidates for State officers proper, to subdi- 
vide into congressional, or other district conventions, 
and will permit municipal and county conventions to 
similarly subdivide and nominate for subdivisions. 

3. No one votes directly for any candidate for a 
nomination to public office, but the form of the bal- 
lot and method of voting are such that any group of 
registered voters in a party may make up a ticket of 
delegates to be voted for. And, though not specified 
in the bill, nevertheless its provisions are such that 
such group may bind the delegates so voted for to vote 
at the convention for their choice of candidates for any 
or every office to be nominated at their party conven- 
tion. 

4. The entire ballot is not printed at public ex- 
pense, but only the formal parts. All voters use 
"stickers" or "pasters." Any club, organization, or 
group may print its list of candidates for delegates and 
cause it to be voted by as many as can be persuaded 
to vote it, without obtaining or filing any petition 
whatever. The regular party organization stands on 
exactly the same footing as any other. It may select 
its candidates for delegates by caucus or in any other 
legal way, and carry on its own campaign in their behalf. 
Independents, so called, being voters, not acting in 
concert with any organization inside a party, are au- 
tomatically provided for in the bill, by the simple 
device of allowing each and every voter to vote either 
a printed "paster" or "sticker" or to write the names 
of his choice on the ballot with pen or pencil. 

5. The official ballot printed by public authority 

35 



PRIMARY ELECTION LAWS 

only contains the general head, "Official Ballot, Pri- 
mary Election 1914," and has the necessary sub- 
heads. The bill allows the voter to duplicate the sub- 
heads on his "sticker." This facilitates the work of se- 
curing votes for candidates for delegates and prevents 
voters from voting for delegates to one party conven- 
tion a list of names which may have been printed by a 
group or organization formed of voters in another party. 
For instance, in the form of ballot (see Appendix C) 
is found in the Democratic column the sub-head, 
"Democratic Column," etc. Now the voter has an op- 
tion to either print and use all these sub-heads on his 
paster, though when he uses it he covers up all that 
part of the print on the ballot, or he may merely print 
the names and paste them under the sub-head as he 
finds them, or he may write them. 

But while the plan facilitates independent organiza- 
tion within a party without regard to the interests of 
any candidate for a nomination at a convention, or in 
the interest of a particular set of candidates, yet a can- 
didate without any organization whatever has all the 
legal opportunities at the primary that he could wish 
for. All he would have to do would be to select his 
own candidates for delegates to the particular con- 
vention before which he expected to seek a nomination 
and obtain all the votes he could for those delegates. 
Of course he could have those candidates for delegates 
selected by an organization formed in his interest, and 
voted for by the members of that organization and by 
as many others as he and his supporters could influ- 
ence. So that this plan would give all those ambi- 
tious individuals who complain that they are not get- 
ting a square deal in politics all the representation at 
conventions to which they are entitled. 

36 



•PRIMARY ELECTION LAWS 

6. Having shown the simplicity, practicability and 
some of the elements of superior justness of this plan, 
something may now be said of its superior economy. 
One of the serious objections to primary election laws 
is the extreme length of the ballot, which not only en- 
hances the expense to the public and to individuals, 
but dulls, and for the most part destroys, interest in 
the personnel of those whose names are on the ballot. 
Under this proposed plan, power is conferred upon the 
governing body of each party to designate the number 
of delegates who shall compose a convention and to 
apportion them to the party's voting strength, but un- 
less otherwise provided by the official body having 
charge of elections, the territorial unit of representa- 
tion is the election district as it stood at the last gen- 
eral election. Such official body is empowered, how- 
ever, for any reason known, or made to appear to it, 
to consolidate not more than three election districts. 

The expense of printing the official ballot furnished 
by public authority, under the plan here proposed, will 
be insignificant in comparison with that of printing it 
under any other proposed plan. As to printing the 
"stickers," which the voter is not bound to exhibit to 
any one, but carries into the booth, that is a private 
expense, but obviously the printing bills will be light. 

How about the length of the ballot? Among the 
advantages of this plan, the obvious advantage of the 
ballot in point of brevity is obvious. The voter here 
selects his names deliberately and need never see any 
names proposed by other persons than himself, or by 
other organizations within the pafty than that with 
which he is acting. Under any other proposed plan, 
even under that which compulsorily makes the elec- 
tion district the unit, the voter must, after a ballot is 

37 



PRIMARY ELECTION LAWS 

handed to him in the voting place, canvass the whole 
roster of names that have been covered by all the pe- 
titions filed and printed by public authority, whether it 
be fifty or five hundred, and from the whole list, he 
makes his selections. It is true that the names might 
appear in groups, but even that aid is denied the voter 
under the provisions of some of the laws in force. But 
why go to the needless expense of printing five or a 
hundred times as many names as the voter can vote 
for, when the only effect of doing so is to confuse him, 
to impose upon him a task of selection, with imminent 
danger that he will disfranchise himself through mis- 
take? 

Under the head of superior economy, it is in order 
to call attention to vast labor and expense involved in 
preparing petitions, getting signatures thereto, filing 
and giving notice, examining, comparing, hearing and 
disposing of objections, etc., etc., made necessary in all 
existing laws, but all obviated under the provisions of 
this bill. And when one comes to reflect about it, 
why should it not be so ? Why should not the primary 
election law prescribe a method permitting the voter to 
make his choice remote from the voting place, if he 
prefers, and vote that choice in secret? Why, instead, 
should he be compelled by law to go on record by en- 
rolling or signing a petition as a condition precedent 
to expressing his will or to exercising any discretion 
whatever in the premises? 

8. Many other points arguing strongly for this plan 
could be mentioned ; but speaking generally, every ob- 
jection that has been urged is met under this plan, and 
every feature demanded by any faction or interest 
must be satisfied by it if inclined to be at all rea- 
sonable. 

38 



(PRIMARY ELECTION LAWS 

The bill is the result of painstaking labor and care. 
Every case and contingency has been thought of and 
provided for, every detail covered by explicit words. 
Taking up the bill in order to study its text remote 
from an occasion calling for its practical observance 
and application, one might find it difficult to under- 
stand or to connect and co-ordinate all its parts; but 
each part and each detail has its separate function, 
which will be readily seen when it is carefully studied 
and considered. 

The bill embodied in Appendix A can, with a few 
minor changes, be adapted to any State in the UnioHo 



39 



CHAPTER IV 

LAWS AFFECTING INTERSTATE CARRIERS— 
THE HEPBURN ACT 

There is an old story of a young bear and a child 
that played together in their babyhood. At first the 
child could do pretty much as it pleased with the in- 
fant bear. But the bear grew in strength, cunning and 
fighting quality much the faster, so that in a little 
while it overpowered and destroyed the life of the 
child. So the people's cause and the railroad interests 
were thrown into the congressional arena. At first 
much loud talk and considerable talent was on the 
people's side; but, in the end, the brains, the strength 
and the cunning on the side of the corporations pre- 
ponderated, and the latter had their way upon every 
vital issue. 

The only material interest which the great body of 
people — the wealth producers and consumers — have 
in the question of rates is their effect upon the cost of 
living and the market price of what they produce, at 
the place of production. Has there been any reduction 
of the one or increase in the other? The cost of living 
has largely increased of late, and if market prices of 
products have been affected at all, at points of pri- 
mary production, they have been lowered, not abso- 
lutely in all instances, but relatively. There is no mis- 
taking, however, the tendency of railroad securities. 
Their average trend is unmistakably upward. 

40 



LAWS AFFECTING INTERSTATE CARRIERS 

One naturally shrinks from the task of describing 
the state of the public mind brought about prior to and 
during the incubacy of the so-called Hepburn rate bill, 
passed by Congress in 1906. As to any statement cov- 
ering the true and false, illuminating and misleading, 
patriotic and demagogic utterances, — that is out of 
the question. Though the people do not remember 
very much, nor remember it very long, they have not 
forgotten the extravagance of the promises concerning 
results and pretenses of hostility on the part of rail- 
way managements to any rate legislation whatever. 
The latter, it is true, evinced a feeling of uneasiness 
along at first. But that was before they got the legis- 
lative machinery well in hand. As time wore on, no 
class in the country, except those who were, or ex- 
pected to be, on the commission, were so anxious for 
the Hepburn Bill to pass, nor so fearful that it might 
fail, as were Hill, Harriman, Cassatt, Ripley, Morgan, 
Gould and the other railway monopolists. 

There were prerogatives which corporations had 
long usurped in derogation of public right which the 
people had contested in their helplessness; and the 
railway owners feared a popular uprising which might 
lead to some sort of reprisal or radical reform. The 
problem was how to satisfy, without relieving, them 
with a makeshift of legislation. The measure with 
which the railroads and politicians fooled them in the 
matter of railroad abuses, extortions and exactions was 
that rate bill. Bogus reformers, brazen pretenders in 
various high public stations, and demagogues of high 
and low degree, are even yet, in face of the obvious 
facts, proclaiming the rate bill and its enactment a 
great victory over the corporations controlling trans- 
portation. But if there had been any real improve- 

41 



LAWS AFFECTING INTERSTATE CARRIERS 

ment, since the act took effect, there would surely have 
been some subsequent evidences of it. The railroad 
officials fully understand the benefits conferred by that 
law, and though they are chary of giving publicity in 
any form to their knowledge, one of them occasionally 
gives a clear intimation of what they realize the Hep- 
burn act to have accomplished for them. 

The busy toilers in the nation's hives of industry, 
whether at manual labor or in sedentary occupation, 
are apt to forget the supreme importance of transpor- 
tation as a factor in the production and distribution of 
wealth. It is to business what thermal heat and the 
seasons are to vegetation, what food and drink are to 
life. The least ambitious wage earner has a vital in- 
terest in transportation facilities and in the cost of 
transportation. Indeed those who give the subject 
least thought, the primary producers and ultimate con- 
sumers, have the greatest interest, because upon them 
is shifted the burden of paying rates and fares. 

A search through congressional debates during the 
two sessions of Congress when the Hepburn Bill was 
under consideration will fail to disclose any extended or 
intelligent presentation of this phase of the great eco- 
nomic question. There were almost interminable ar- 
guments with constant references to the constitutional 
powers of Congress, designed to show that Congress 
has very little power in the premises, or none at all, or 
that it ought to very sparingly exercise such powers 
as it possesses. There were plenty of arguments to 
prove that there had been much wicked rebating, af- 
fecting business interests, and it was viewed as some- 
thing intolerable that the payment of rebates had 
wrought injury to, or caused the failure of, business 
men. But of the people back of those business inter- 

42 



LAWS AFFECTING INTERSTATE CARRIERS 

ests, those who ultimately "pay the freight," very little 
was said. They were not represented, of course, in the 
lobby, and since the extortions practiced on them by 
the railroads are concealed in the price paid for food 
and shelter, few, if any, complaints were presented by 
consumers, or in their behalf. The most vociferous 
maledictions were uttered against such well anchored 
and securely buttressed monopolies as the Standard 
Oil Company, the "Beef Trust," and the Pennsylvania 
Railroad, because of rebating, discrimination, questionable 
methods of doing business, etc. 

All the politicians posing as statesmen, and having 
much to say about discriminatory rates, avoided say- 
ing anything about high rates, and were as far as the 
East is from the West from doing anything that would 
directly or seriously injure any monopoly or substan- 
tially reduce its revenues, or disturb its status as a mo- 
nopoly. Time and again it was stated by the cun- 
ningly wise that there was no complaint from any 
quarter that rates were too high, and the statement 
passed almost unchallenged. 

Notwithstanding the limitless gush during cam- 
paigns about the patriotic heart-throbs of Representa- 
tives and Senators for the "plain people," the "masses," 
the "toilers," there were very few in the House or 
Senate with wit enough to expose the enormity of 
monopoly's exactions for transportation, or of its ef- 
fect upon the living expenses of the people ; or, if there 
were such, they were held down and silenced by the 
unseen but all-powerful insiders who watched, re- 
vised, amended and pruned the bill until it was seen 
to be, not only harmless to the railroads, but highly 
promotive »of their interests. Corporate agents with 
free access to the lobby and cloak rooms had ample 

43 



LAWS AFFECTING INTERSTATE CARRIERS 

time and opportunity to study its effects in operation 
and devise means for fooling the people by the inser- 
tion of amendments ostensibly hostile to the transpor- 
tation "trust," but so worded as to give no real relief 
to the shipping interests of the country. 

True, the people were represented to some extent 
on the Interstate Commerce Commission ; but the rail- 
roads were more numerously and ably represented. 
The railroads had their collars on some Democratic 
as well as many Republican necks, and their O. K.'s 
on men who never ceased to battle for the people upon 
issues which were of no immediate interest to their 
incorporated employers. When the Hepburn Bill, the 
product of consultations between Interstate Commerce 
Commissioners, Republican members. Democratic 
members and railroad lobbyists, came out of commit- 
tee, a pact was entered into and lived up to between 
controlling influences outside and inside, that no 
amendments should be offered on the floor of the 
House. 

As a general — all but universal— rule, the real suf- 
ferers from the complete ascendancy of the railroads 
to commercial and industrial supremacy are voiceless 
and destitute of representation in the councils of the 
nation. But, under intense pressure, one Congressman 
at any rate (Hon. W. B. Lamar of Florida) spoke for 
them, pending an amendment to one of the appropria- 
tion bills, at the session of 1906-7, designed to increase 
the salaries of Congressmen. And, since the "Con- 
gressional Record" has been made a high-priced pub- 
lication, in order to forestall general information of 
the misdeeds and deeds of omission of Congressmen, 
and in order that some of the people, at least, may 
learn in his own language what this discerning and 

44 



LAWS AFFECTING INTERSTATE CARRIERS 

recalcitrant member said, an extract from his speech 
is inserted as follows : 

"To-day the lumber men, vegetable men, tobacco 
men, fruit men and farmers generally in the district I 
represent are oppressed and injured by extortionate 
railway rates and charges. And this House of Rep- 
resentatives, Democrats and Republicans, has not 
passed an adequate law to protect the interests of the 
people who sent me here, and I will not cast a vote 
to raise either my own salary or the salary of members 
of this House collectively when this House has de- 
clined to pass a fair, just and adequate statute that 
will protect the interests of which I speak. Mr. 
Speaker, some of the railways in my district are capi- 
talized at two, three and four times their value. Every 
article shipped out of my county, every article shipped 
out of my district, every article shipped into my 
county, every article shipped into my district, is un- 
justly taxed by the gross, fraudulent device of over- 
capitalization of the railroads. Whether $7,500 per 
annum be an adequate compensation for members or 
not, I place one serious objection to it upon the ground 
that this House, without regard to party, did not, when 
it had an opportunity to do so, pass a fair, just and 
adequate law that will protect the people whom I 
have the honor here to represent." 

The House is a body of numerous membership 
whose responsibility is minutely divided. It is much 
easier for the members of the House who hold briefs 
for private interests to conceal their hands and cover 
up their tracks than is the case in the Senate. The 
"Congressional Record," which used to be free and 
to be extensively circulated among the people, is now 
a high-priced publication — made so apparently for no 

45 



LAWS AFFECTING INTERSTATE CARRIERS 

other reason than to keep the people in the dark as to 
the doings of their representatives. Then there are 
the rules, such as would answer all the purposes of an 
autocratic court, and executive (secret) committee 
meetings, patterned after Star Chamber of infamous 
memory. There is an occasional outburst by a member 
of the minority about the tyrannical power of the ma- 
jority under the rules, but such members soon find 
themselves ostracised even by the leaders of their own 
party. Indeed the rules in force suit the convenience 
of such of the minority members as are subservient to 
private interests, just as they do the majority mem- 
bers; for both sides are sometimes bent upon schemes 
that do not bear investigation, and publicity is pre- 
vented by the rules and by practically suppressing the 
printed record, by the high price placed upon it. 

So the Hepburn rate bill came from the committee 
an intensely pro-railroad measure, and as such was 
rushed through the House without amendment, and 
practically without debate, both sides consenting. 
That it was a bill of that character can be clearly 
shown. 

Now, when the bill had reached the Senate, the 
unmuzzled few, inside and outside Congress, who 
were conversant with its provisions and their effect 
in operation, began to talk to the few senators who 
dared listen, and to the reporters for such newspapers 
as were not subsidized, concerning the features of the 
bill which if enacted into law would create a situa- 
tion worse for the public, and better for tl\e rail- 
roads, than if there were no rate legislation what- 
ever. There were several senators who were not 
shackled with corporate pledges, but merely blind in 
their ignorance, even of the fundamentals of the rail- 

46 ' 



LAWS AFFECTING INTERSTATE CARRIERS 

road question and of the true relation of transporta- 
tion to the commerce and industry of the country. It 
became the province of the railroad forces to keep 
the minds of these senators diverted from the fatal 
defects of the bill and their attention engaged on non- 
essentials. Those amendments objected to by the 
railroad interests were mainly proposed by Senator 
La Follette, he being about the only intelligent ex- 
ception among those not controlled by the corporate 
interests. One or two of the La Follette amend- 
ments were well calculated to render the bill effect- 
ive; but they were voted down, sometimes a few 
Democrats voting with the Republicans to insure a 
safe majority against the amendments. These Dem- 
ocrats usually assigned "constitutional doubts," but 
by way of variation "the infringement of State rights" 
was once or twice assigned as the excuse. 

When all the sensible and nonsensical amendments 
had been adopted or rejected, the rate bill was a very 
crazy quilt of legislation. No one knew what it 
meant, and not many ever will know; and, for that 
reason, and lest the Interstate Commerce Commission 
might find itself forced by the insistence of some per- 
sistent litigant to make a ruling distasteful to the 
railroads, from which it could not gracefully recede, 
the transportation interests deemed it safer to have 
inserted a saving clause in the bill, having the effect 
of a back door of retreat in case of effective action 
in any case that might be brought before the Com- 
mission. So an amendment was adopted, historically 
known as "the provision for a broad judicial review." 
Then the bill was conveniently hung up in conference 
and a prolonged controversy entered into between 
some of the confreres, during which the railroad at- 

47 



LAWS AFFECTING INTERSTATE CARRIERS 

torneys had ample time to re-examine the amended 
bill and discover if any features objectionable to them 
had not been weeded out. They finally concluded 
that the "broad judicial review amendment" was a 
sure safeguard against any prejudicial order the Com- 
mission could make. So, after the railroads, through 
their lawyers, had O. K.'d the measure, it was re- 
ported back from conference, with a few minor 
changes, and promptly passed in both houses. The 
President ceremoniously, but promptly, affixed his 
signature, and the "dear people" were "fooled again." 

It is mere justice to state that President Roosevelt 
recommended to Congress, in his first annual message 
in December, 1905, legislation which would have been 
a great improvement on existing law. And, while he 
usually carried his points in legislation, he encountered, 
in this instance, a combination of special interests 
which made it necessary for him to accept and ap- 
prove this compromise. 

It would have required no phenomenal legislative 
wisdom, only ordinary talent for constructing laws, for 
Congress to have done what was sorely needed to be 
done, and the most important of all that could be 
done, for the great body of the people, in the way 
of rate legislation. Of course, rebates must be sup- 
pressed and rebating managers punished ; but that 
might just as well have been done under the pro- 
visions of the original act, or of what was known 
as the Elkins amendment to the Interstate Commerce 
Act of 1887, passed at a previous session, if viola- 
tions had not been, to a great extent, condoned by 
officers charged with the duty of enforcing the laws. 
There was just one way to relieve the people of the 
more grievous evil, that of extortion, inflicted by 

48 



LAWS AFFECTING INTERSTATE CARRIERS 

transportation monopolies, and that way was plain, 
simple and adequate. The measure that would really 
have been serviceable would have been one directing 
the Interstate Commerce Commission to take up the 
whole railroad and transportation question of the 
United States, ascertain what it would cost to repro- 
duce the great dominating systems of the country, 
not each railroad engaged in interstate commerce, as 
was provided for at a later session, but in their en- 
tireties, only the great railway systems, and empow- 
ering the commission to revise and establish entire 
schedules of rates for them. 

All else in a rate bill is of infinitesimal value as 
compared with such an equitable, just and reasonable 
provision. But by promulgating a voluminous, com- 
plicated measure, containing a forest of legislative 
exotics and a tangled wilderness of words, the com- 
bined meaning of which no one can, or ever will be 
able to, explain, it was supposed by the sponsors 
for the bill that its fatal defect would be overlooked — 
at any rate for as many years as it took to learn what a 
fraud and makeshift was the original interstate com- 
merce law. 

The Act comprised twenty-four long sections. 
There were various definitions of things the meanings 
of which were already well known.. Numerous ex- 
pensive proceedings were directed to be instituted 
for the accomplishment of useless things, and many 
other things were directed to be done, any attempt 
to do which must, in the nature of the case, prove 
wholly abortive. There were other things directed 
to be done, which, though feasible, involved limitless 
and continuous labor on the part of railroad em- 
ployees, and prodigal expenditures from the national 

49 



LAWS AFFECTING INTERSTATE CARRIERS 

treasury, necessitated by the employment of a vast 
army of clerks, the total results of which, when ac- 
complished, were not of the slightest value to the 
public or to a single individiial on the earth. But to 
round out the monstrous imposition and give an im- 
pression of magnitude and importance to this stage- 
play legislation, the membership of the Commission 
was increased from five to seven, and their salaries 
increased from $7,500 to $10,000 a year. 

After illegalizing, in vague terms, several forms 
of discrimination, and prohibiting, generally, the grant- 
ing of free transportation, the act contained a long 
list of exempt classes, and amongst them ^'attorneys at 
law." The exempted classes were thus granted ex- 
clusive privileges of considerable value which were 
denied to the general public. The act allowed the 
Commission "to determine and prescribe what will 
be the just and reasonable rate or rates, charge or 
charges, to be thereafter observed," etc., "as the max- 
imum to be charged." But this cautious stipulation 
was so hedged about by conditions, limitations, pro- 
visos and qualifications in the same and other sec- 
tions, as to render it of little if any value or protec- 
tion against exorbitant charges. As no rule or stand- 
ard was prescribed for ascertaining the reasonable 
rate, and as the Commission could only act upon com- 
plaint filed by an injured shipper, and as the filing 
of such complaint was, under the "broad judicial re- 
view" provision, merely the commencement of a costly 
litigation to continue until the relief would not be 
needed, or would be no help for the wrong done, 
it is little wonder that very few seriously contested 
cases have come before the Commission since the act 
was passed. 

50 



LAWS AFFECTING INTERSTATE CARRIERS 

Populations of countries have been impoverished 
and compelled to resort to revolution to escape star- 
vation, and republics have been undermined and de- 
stroyed, by the insidious introduction into a law of 
a single vicious economic or political principle ; and 
there is a destructive element in railway law, at first 
given life and operation by the courts, and now chrys- 
talized into statute law in this act, without discus- 
sion or protest. It is the legal recognition of the 
claim by public service monopolies that they are en- 
titled to a guarantee from the public which must 
use them, from necessity, of a regular unfailing profit 
upon the business they do, whatever fate may befall 
all other business establishments or ventures. The 
people endure many wrongs simply because they do 
not understand them, which, if fully understood in 
all their true bearings, would no more be submitted 
to than would the introduction of an epidemic, or an 
invasion by a hostile foreign force. The established 
heresy that railroad rates shall in all cases and under 
all circumstances be sufficiently high to insure an 
income from investments in railroad property is it- 
self a discrimination in favor of, and a special favor 
granted to, that class of capitalists of serious import, 
and leading inevitably to the absorption by them of 
a large share of the national wealth. But not until 
that bill became a law was the proposition authorita- 
tively sanctioned that monopoly power was itself prop- 
erty, to be counted, estimated and appraised in ascer- 
taining the aggregate of a railroad's property, as a 
basis for fixing rates. In order to commit the govern- 
ment, the people and the Commission to the theory 
of enormously evil import, that after considering actual 
investment the monopoly privilege should be valued 

51 



LAWS AFFECTING INTERSTATE CARRIERS 

and added, a word was skilfully incorporated in the 
twentieth section of the bill, in such connection as to 
accomplish that dire and sinister purpose. Among 
the matters which the Commission was directed to 
require carriers to annually report were, "the cost and 
value of the carrier's property, franchises and equip- 
ments." And, notwithstanding subsequent debates 
and amendments by Congress, these words are still 
found in the act. 

Now a franchise has been defined in varied ter- 
minology, but all agree that it is a privilege enjoyed 
by one to the exclusion of common right, an exclu- 
sive privilege such as the privilege to dig up the 
streets and lay down gas pipes or rails, or, in the 
case of steam railroads, the privilege of constructing 
tracks over private lands and public property, and of 
collecting from the public tolls, rates and fares. In 
short, a franchise is such a privilege as would with- 
out a concession or grant by the State, remain a 
particle of sovereignty, to be exercised by the gov- 
ernment for the equal benefit of all. These privileges 
have been granted to railroad corporations by the 
federal and State governments without charge. They 
constitute monopolistic power, and have been used in 
connection with investments in property to the vast 
enrichment of the investors. Now comes the Con- 
gress of the United States and gives express legisla- 
tive recognition to the claim, long made by the rail- 
road managements, but theretofore resisted, that these 
monopolistic privileges are themselves to be valued, 
which, of course, constitutes a legislative recognition 
of their character as property. This is accomplished 
by requiring the companies to report and the Com- 
mission to receive and record, "the value and cost of 

52 



LAWS AFFECTING INTERSTATE CARRIERS 

* * * franchises * * *." In view of this statu- 
tory status of franchises as property, no one need 
wonder or misunderstand the increase in mileage earn- 
ings and in market value of the principal railroad 
stocks since the act was passed. 

According to the report from the Commission next 
following the passage of the bill, the gross earnings 
of the railroads increased from $9,598 per mile in 1905 
to $10,543 in 1906, and the net earnings from $3,139 
per mile in 1905 to $3,580 in 1906, equal to about 15 
per cent. Dividends for 1906 increased $35,750,000 
over 1905. It was openly claimed by all railroad au- 
thorities that the financial condition of the roads had 
greatly improved and the increase of dividends con- 
firmed it. Instead of competition and reduction of 
freight charges resulting from the act, the big sys- 
tems no longer feared a rate war. 

Dividends have been, within a comparatively recent 
period, considerably increased, notwithstanding vast 
investments in improvements. The terminal im- 
provements by the Pennsylvania and the New York 
Central in New York City alone involve the expen- 
diture of hundreds of millions, and such improve- 
ments are being made by all the roads, though on a 
less extensive scale. Within three months after the 
act took effect, the Lake Shore increased its dividend 
rate from 8 to 12 per cent., and the Michigan Centraf 
from 4 to 6 per cent. These properties are controlled 
by the New York Central. The New York Central 
rate was increased about the same time from 5 to 6 
per cent. The Norfolk and Western, a short while 
ago, was engaged in a disastrous rate war. In 1900 
it paid no dividends. It now pays 5 per cent. The 
Baltimore and Ohio paid 2 per cent, in 1900. It now 

S3 



LAWS AFFECTING INTERSTATE CARRIERS 

pays 6 per cent. The Chesapeake and Ohio also suf- 
fered from the rate war and paid no dividends. Divi- 
dends are now paid on its stocks. The dividends paid 
by the Big Four road have been increased from 3 to 4 
per cent. Before the rate law went into effect, it was 
generally supposed that it would take a decade at least 
for the Southern Pacific to recover from the San 
Francisco earthquake and fire and pay dividends on 
its common stock. But it now pays 5 per cent. The 
Union Pacific, which was in the hands of a receiver 
not many years ago, recently had its dividend rate boosted 
over night from 6 to 10 per cent. 

The railroads not only retain, but have confirmed 
to them under the Act, the most valuable privilege of 
monopoly, that of exploiting the public to the full 
extent that the traffic will bear. That is a legislative 
creation of vast — practically unlimited — value; an as- 
set, the right to value at all was previously disputed. 
The franchises really belong to the people, subject 
only to use by the railroads upon sufferance. The 
value of these benefits conferred by the Act upon the 
transportation monopolies can be seen in the substan- 
tial and unprecedented rise of railroad securities above 
referred to, increases in surpluses and dividends re- 
ported by the Interstate Commerce Commission, and 
commented upon by the press as "evidence of general 
prosperity reflected in railway earnings." 

The writer does not flatter himself that the decep- 
tions and delusions about rate regulation and control 
of transportation by act of Congress will be entirely 
or generally dispelled by this genesis and analysis 
of the legislative farce put on the national boards in 
1906. But it is hoped that it will start an inquiry 
which may sooner or later lead to important results. 

54 



LAWS AFFECTING INTERSTATE CARRIERS 

It is feared, however, that it will require many more 
years of intensified oppression and extortion, such 
as the industrial monopolies have practiced since long 
prior to the passage of the "anti-trust" act in 1890, 
to fully enlighten the people as to the true origin, 
paternity and effect of this railroad rate act, wherein 
under the cloak of reform, such exploitation was made 
possible as only a country of immense, though di- 
minishing resources, and a wonderfully industrious 
and prolific people could endure. 

An idea has been carefully and industriously spread 
abroad that the payment of rebates was about the 
only evil worth considering or needing a legislative 
antidote. It was but one form of discrimination prac- 
ticed by carriers, most other forms being legalized, 
or irremediable. For the prominence given the evil 
of rebating there were two causes. First, a rebate 
is a palpable, acute injury, ,easily defined and meas- 
ured, when the facts are known. Secondly, the cru- 
sade for its suppression and for the punishment of 
those guilty of practicing it, was along the lines of 
least resistance, because none of the railroads were 
really adverse to the abolition of rebates and the 
establishment of uniformity as between individuals, 
if it could be establihsed by law and preserved through 
a Commission standing impartially between them, its 
expenses and salary charges paid by the government. 
It is no secret among those conversant with railroad 
business that rebating was not only a disagreeable 
but a costly practice, which each railway, being a 
law unto itself, supposed to be necessary in order to 
obtain and retain its due share of traffic tonnage. 
Therefore no one acquainted with the situation was 
surprised at the acquiescence in the rate bill of railroad 

55 



LAWS AFFECTING INTERSTATE CARRIERS 

officials and attorneys, when it was seen that rebating 
was about the only abuse for which it provided pun- 
ishment as a remedy. Its stringent and specific pro- 
visions relieving traffic managers of the strain of 
watching rivals and struggling for business, and leav- 
ing with the railroads the power of equalizing rates, 
upward rather than downward, through the friendly 
agency of a government commission, promised vastly 
greater pecuniary returns than they enjoyed under the 
pre-existing interstate commerce act. And this prom- 
ise has been fully realized. 

There can be no question of a popular demand for 
relief from the abuse of rebating, nor of the merits 
of the rate bill, in so far as it sought to end rebating. 
But that was only one of the reforms desired by the 
people, and, though that was an evil of some magni- 
tude, it was by no means the principal grievance. 
Except for the fact that the rebates were usually paid 
to great industrial monopolies and served to build them 
up by the destruction of competition, the people at large 
had little interest in that subject of legislation. 

But there are discriminations of ten-fold greater im- 
portance not relieved by this act. For instance, discrim- 
inations with reference to priority of shipment and dis- 
criminations between kinds of freight and localities. 

A provision of the Hepburn Act reads as follows : 

"That it shall be unlawful for any common carrier 
subject to the provisions of this Act to make or give any 
undue or unreasonable preference or advantage to any 
particular person, company, firm, corporation or locality 
or any particular description of traffic in any respect 
whatsoever, or to subject any particular person, company, 
firm, corporation or locality, or any particular descrip- 

56 



LAWS AFFECTING INTERSTATE CARRIERS 

tion of traffic, to any undue or unreasonable prejudice or 
disadvantage in any respect whatsoever." 

It will be noted that this purports to embody a general 
and sweeping prohibition against discriminations. If 
Congress really had desired to forbid discriminations, it 
was fully competent to have done so in explicit and un- 
qualified terms. But what it was aiming at was to leave 
in the hands of railway managements about the same 
discriminatory powers that they had previously possessed. 
For instance, in this general prohibition, instead of say- 
ing that "it shall be unlawful for any common carrier 
* * * to make or give any preference or advantage," 
etc., the words "undue or unreasonable" are interpolated, 
the effect of which is to leave a very wide field of 
discretion and a license of indefinable scope to the car- 
riers. 

There is nothing in the Act to prevent outrageous and 
ruinous discriminations between localities and kinds of 
traffic. And the people have already had an opportunity 
to learn how this provision is interpreted by the traffic 
managers of the country. In the early winter, immedi- 
ately following the taking effect of the Act, the railroads 
so used this dangerous and comprehensive discretionary 
power that suffering, disaster and death were visited upon 
many homes in the northwest by reason of a coal famine, 
and many farmers were ruined, because no cars were 
furnished in which to move their grain crops to market. 
Suffering and inconvenience from lack of coal were 
reported from half a dozen States, and yet there was no 
shortage in the season's output. The winter up to that 
period had not been severe, and there had been no snow 
blockades worth mentioning. The fault was entirely with 
the railroad companies, and they had been neglecting the 
people in their zeal to increase their surpluses, notwith- 

57 



LAWS AFFECTING INTERSTATE CARRIERS 

standing pretences of shortages of cars. Coal and grain 
are low grade, easily handled freight, but do not yield so 
large revenues as some other kinds. Consequently they 
were sidetracked to make room for more profitable busi- 
ness. And this exclusively private view of their business, 
this notion of absolute irresponsibility to public necessity 
and convenience, put into practice, caused much loss to 
the mercantile interests throughout the country and much 
deprivation and destitution among the poorer classes 
everywhere, while the railroads were seeking and find- 
ing shelter under those conveniently inserted words 
"undue and unreasonable." 

It is not within the power of the Interstate Commerce 
Commission to afford any relief against such a deplor- 
able state of affairs, no matter how often the railroads 
in their greed, and in the exercise of their mastery of 
the situation, see fit to bring it about. The rate law 
provides no means for determining what is an "undue 
or unreasonable" discrimination against, or advantage 
to, a locality, or between classes of traffic. Nothing 
short of complete control of the entire mileage of the 
country and of all the rolling stock would enable the 
Commission to prevent such trade catastrophies as that 
above described. 

Words are often meaningless. But there are occasions 
when the welfare of a whole nation may hang upon the 
context or construction of words used in a written law. 
As this is a country supposedly governed by laws rather 
than by men, it is not only a privilege but the duty of 
citizens who would be even reasonably well informed 
concerning the acts of the men they have chosen to 
represent them, to study each for himself the very terms 
of the statutes enacted, and not be too easily satisfied 
with the mere platform declarations of parties and public 

58 



LAWS AFFECTING INTERSTATE CARRIERS 

utterances of politicians concerning their official perform- 
ances. These observations have peculiar significance in 
application to that much-advertised railroad rate law. It 
will be found upon close scrutiny that neither those who 
made the law nor the non-office-holding publicists rep- 
resent its ultimate and final effect truly. 

The Act provides in Section 15 that, under certain 
circumstances, the Commission shall have power "to 
determine and prescribe what will be the just and reason- 
able rate or rates, to be thereafter observed in such 
case, as the maximum to be charged." The most import- 
ant condition precedent to the determination is the filing 
of a complaint. The Commission has no power to over- 
haul or readjust, or to reduce, or to change in any 
respect whatever, the individual rates of any railroad 
upon its own initiative, but only "upon the filing of a 
complaint," making specifications of excessiveness of a 
rate. Now let any citizen, ordinarily circumstanced, put 
the question to himself whether he is likely ever to file 
such a complaint. He examines statistics and finds the 
railroads have formed gigantic combinations which col- 
lect from the public each year an amount equal to all 
the money in circulation and twice as much as is collected 
from all sources by the federal government. He realizes 
that fortunes amounting of hundreds of millions are 
being created in scorces of instances, within brief periods, 
out of fraudulent exactions in the form of freights and 
fares ; in short that the real taxing power in this country 
is not the government but the men in control of transpor- 
tation. He may realize that somehow his struggle for 
a livelihood or for a profit has intensified; and he may 
strongly believe that excessive charges for transportation 
are in part responsible for it. But supposing he feels 
called upon individually, for the injury to his individual 

59 



LAWS AFFECTING INTERSTATE CARRIERS 

interests, to proceed against so mighty an adversary. In 
the first place, of course, he must have a lawyer to form- 
ulate his complaint and conduct the proceeding, because 
the statute does not authorize any public officer to begin 
or prosecute the proceeding, nor, as has been already 
stated, does it allow the Commission to initiate it. Well, 
our citizen hires his lawyer, or offers to do so, and the 
first thing the lawyer does is to ask him for particulars. 
Unless he is a merchant, or manufacturer, or an habitual 
shipper in some other way, it is just as impossible for 
him, with or without legal assistance, to formulate a com- 
plaint as if he contemplated suing the city or county in 
which he lives for damages resulting from excessive 
taxation. We come to the shipper — the merchant, man- 
ufacturer or speculator in products — and we find that he 
has little if any interest in the matter. In the same way 
that the landlord shifts his taxes to the tenants and the 
merchant adds the expenses of conducting business to 
his selling price, these and other shippers pass all excess- 
ive freight charges to the consuming public, covered up 
and concealed in, the price. 

Supposing we find a shipper with the requisite hardi- 
hood to incur the unrelenting hostility of the railroads, 
and he hires a lawyer who frames a complaint that on a 
particular day he sent a shipment of a certain commodity 
over a given railroad and the freight charge was, for 
instance, ten dollars in excess of "a just and reasonable 
rate." In due course of the protracted litigation he has 
thus entered upon he is called upon to prove his allegation. 
Here comes in the joker which this act has so conven- 
iently left in the hands of the carriers. He is entirely 
destitute of any evidence satisfactory to a court of what 
in the particular instance would be a just and reasonable 
rate or constitute an unreasonable charge. In all the 

60 



LAWS AFFECTING INTERSTATE CARRIERS 

cases that have arisen, not once has the court undertaken 
to determine just what matters ought to be considered 
in determining the question and in the nature of things 
it cannot be done. Ten thousand elements enter into the 
making of each rate for a single railroad. To determine 
the unreasonableness of a rate, the inquiry does not stop 
with the affairs of the particular company making the 
charge, but must extend to the interminable affairs of, 
and relations between, that and every other company in 
the country with which it competes or holds any con- 
nection. Not only so, but since every railroad is con- 
nected with ocean transportation, the constantly varying 
and fluctuating cost of the latter must be ascertained — 
an utter impossibility. As a result of all this, the decision 
of the Commission in any case presented before it wherein 
it is required to declare what is the reasonable rate is mere 
guesswork, and its written opinions (reports) purely 
speculative. 

The people may wonder and experience disappointment 
in view of the fact that the Interstate Commerce Commis- 
sioners are passively resting on their oars, in so far as 
concerns the reduction of railroad rates; but those who 
watched the proceedings at Washington, during the incu- 
bation of the rate bill, and scrutinized its provisions, are 
not surprised at the outcome. 

It seems to be conceded that the Commission may make 
a comparison of rates for the purpose of exercising the 
power thus narrowly Hmited by the bill. But that this 
concession by the railroads was in entire harmony with 
their general design and determination that the Com- 
mission should sit only as an equahzing or arbitration 
board, subserving the interests of the carriers, is easily 
shown. Mr. Jones, we will suppose, files a complaint 
alleging that the rate charged by a particular carrier on 

6i 



LAWS AFFECTING INTERSTATE CARRIERS 

wheat from a point in Kansas to Chicago is twenty cents 
per hundred and that the rate is "unjust and unreason- 
able," following the language of the Act, and that a just 
and reasonable rate would be ten cents per hundred, and 
asking that the maximum rate be fixed by the Commis- 
sion which shall be just and reasonable. Now, all that 
the Commission can do, in order to determine whether 
or not the complaint is well founded, is to compare the 
existing rate of twenty cents, which the carrier has fixed, 
with the rates charged by the same company for carrying 
other commodities. Such comparison, however, is of rates 
all of which may be fifty, a hundred, or five hundred per 
cent, above what are reasonable and just rates. But 
as to the justness or unjustness, and reasonableness or 
unreasonableness, of the whole schedule of rates the Com- 
mission has no jurisdiction to investigate. It is powerless 
to extend its inquiry beyond the allegations of the com- 
plaint before it, nor can it make any valid finding or order 
with respect to the reasonableness or unreasonableness 
of any rate beside that specified in the complaint, and 
therefore any finding or order reducing that rate would 
be set aside by the courts as one made arbitrarily and 
upon insufficient evidence. So, though the Commission 
should be of the opinion that the carrier had in force a 
schedule of rates yielding dividends on a hundred mil- 
lions of stocks that represented but a small investment, 
or none at all, it could afford no relief. 

In the first case carried up to the Supreme Court under 
the Interstate Commerce Act of 1887, involving the exer- 
cise of the power of the Commission to substitute a rate 
in lieu of the one found to be unjust and unreasonable, 
it was held that the Commission held no such power. 
That left the power to fix rates just where it was before, 
namely, in the hands of the railroads, subject to no con- 

^2. 



LAWS AFFECTING INTERSTATE CARRIERS 

trol or restraint, except the roundabout and ineffective 
power to resort to the courts for an injunction or the 
wholly abortive remedy of an action for damages. Now 
the thing principally desired by the people, and originally 
recommended by the Commission and President Roose- 
velt, the thing upon which most stress was continually 
laid, was such an amendment of the Interstate Commerce 
Act as would confer upon the Commission the power to 
fix rates. The foundation of the demand upon Congress 
for legislation was not merely the practice of discriminat- 
ing, or payment of rebates, but also relief of the public 
from rates that were too high. The reason it was desired 
to vest the, fixing of rates in an official body was that 
the railroads had abused the power and robbed their 
patrons through excessive charges. Such official body it 
was thought might be trusted to stand and act impartially 
between the people and the carriers, nor was there any 
doubt, in the mind of any fair and reasonable man, that 
a Commission could be found that could be trusted to that 
extent. But the railroad interests as represented in Con- 
gress were unwilling to trust any Commission, and set 
themselves doggedly against the proposition of doing so. 
And it was through fear that, in spite of the legal cunning 
employed in framing the bill, some such power might 
have been inadvertently conferred upon the Commission, 
that the "broad judicial review" amendment was adopted, 
the effect of which was to empower the carrier to wipe 
out and annul any order of the Commission fixing a max- 
imum rate and to lift the whole subject matter of a com- 
plaint into the courts where it has to be re-examined in 
all its aspects, de novo. So, if the carrier is disposed to 
take an appeal, no final decision can be reached for years. 
In the meantime, the conditions demanding the special 
relief prayed in the complaint will have radically changed, 

63 



LAWS AFFECTING INTERSTATE CARRIERS 

and a decision in favor of the complainant will be value- 
less. Any vitality that might have remained in the act 
was eliminated, and the rate-fixing feature, which alone 
justified the bill being called a "rate" bill was obliterated 
as completely as if the amendment had said, in identical 
words, ''But the exercise of the maximum rate-making 
power hereby conferred shall be of no force or effect 
unless the action of the Commission shall be entirely sat- 
isfactory to the carrier and in case of the carrier objecting 
to the action of the Commission, such carrier may resort 
to the courts as heretofore, and by so resorting nullify any 
action so taken by the Commission." 

It is not to be wondered at then that thus far very little 
has been done by the Commission except what was en- 
tirely satisfactory to the railroads. 

The people are coming day by day to better understand 
the abuses and dangers of arbitrary power over the 
nation's transportation, when vested in private hands. A 
leading Republican newspaper, published in New York 
City, commented, at the time, upon the car famine above 
referred to as follows : 

"Under federal ownership of the trunk railroads the 
administration to blame for such a state of affairs would 
be driven from power by an overwhelming majority 
at the polls." Public indignation would be what might 
■^ be expected now if for cause that could be provided 
against the mails should be delayed for six or eight weeks. 
Perhaps the public would not be so angered in that case 
as the shippers are now, with their valuable produce 
perishing on account of the general collapse of transpor- 
tation facilities. We could wait for our mail. The 
shippers' losses are irreparable, and the result is increas- 
ing prices to consumers on account of an artificial re- 
striction of the supply. When the public understands 

64 



LAWS AFFECTING INTERSTATE CARRIERS 

this it will lean more and more toward the Bryan pro- 
gramme." 

And the "St. Louis Post-Dispatch," previously an 
unrelenting foe of government ownership, soon after- 
wards concluded an editorial as follows: 

"Again, American experience in regulation and con- 
trol is not encouraging. It has proven itself a doubtful 
cure of a disease which might better have been prevented. 
Combinations have been controlled to the extent of dis- 
solution. But they combine on another basis and the 
same wrongs are committed again and again. Moreover, 
the question presses,*' will the Government regulate and 
control the good combines or will the good combines 
regulate and control the Government? The knavish 
resources of monopoly seem to be unlimited. Trust law- 
yers are fertile-witted men and it is notorious that some 
of the worst monopolies are well represented in the 
Government. Mr. Roosevelt himself had experience of 
this when he sought to procure the passage of the rate 
bill and the meat inspection bill. There is no middle 
ground. Monopoly is an evil thing. There is no good 
in it, and to permit it in any form is to throw open the 
doors to every abuse of irresponsible power. It must be 
crushed, not tolerated or regulated. THE ALTERN- 
ATIVE IS GOVERNMENT OWNERSHIP, which 
Mr. Roosevelt professes to hold in special horror. But 
if his views, as expressed in his message, prevail, he will 
have done more than any other single influence to drive 
the country to that very issue." 

The vesting of absolute control of rates in a Govern- 
ment Commission would be as bitterly opposed by the 
railway interests as Government ownership. But that 
the people will ultimately be driven by necessity to one 
or the other alternative, those who study the subject 
without bias, fear or favor must clearly see. 

65 



CHAPTER V 

LAWS AFFECTING INTERSTATE CARRIERS- 
AMENDMENTS OF 1910 AND 1912. 

We now come to certain amendments to the Interstate 
Commerce Act made in 1910, and, after briefly noticing 
them, will give some attention to what may be con- 
sidered an abortive valuation act, passed in 1912. After 
which will be stated what Congress could do for the 
public relief, and what it will do if the freight payers 
of the nation, the term including every man, woman and 
child, knowing their rights, dare demand them. The 
fourth section of the act (known as the long and short 
haul clause) was amended by leaving out the words 
"imder substantially similar circumstances and condi- 
tions," but a proviso was inserted in lieu ^of it which 
was so construed by the commerce court as to practically 
perpetuate the law as it stood before. The power to 
suspend rates filed which increased previous rates until 
an investigation could be had as to their reasonableness, 
and placing the burden of proof on the carriers to 
prove their reasonableness was also added to the fifteenth 
section. The burden of proof provision is known as the 
Cummins Amendment, taking its name from its author. 
Senator A. B. Cummins, of Iowa. If given effect ac- 
cording to its true meaning and intent, it would be an 
insuperable obstacle to any general, or percentage, in- 
crease of rates, and such effect was given it in the 

66 



LAWS AFFECTING INTERSTATE CARRIERS 

rate advance cases (1910-1911), as to defeat a ten per 
cent, increase of rates shown in schedules filed with the 
Commission covering a vast volume of traffic, and which 
would have increased the burdens of shippers by many 
millions of dollars. 

The importance of this amendment, if given its full 
effect as intended, it would be difficult to overestimate. 
After passing the Senate the House accepted that among 
other amendments and disagreed to several Senate amend- 
ments. The whole subject then went before a confer- 
ence committee. The railroad lobby in Washington hap- 
pened to be asleep' when the amendment passed the Sen- 
ate. Therefore, it invaded the Conference Committee 
in full force, and was able to enlist in the railroad as- 
sault on that amendment the entire Taft administration. 
The President and his Attorney-General (Wickersham) 
went the unprecedented length of calling a meeting of the 
confrees at the White House. There was, even then, 
however, a powerful Democratic minority in the House, 
led by the fearless and incorruptible Champ Clark, now 
the Speaker, having the support also of the progressive 
Republicans led by Mr. Lenroot of Wisconsin, and a few 
regular Republicans conspicuous among them being Hon. 
Martin B. Madden of Illinois. The question arose while 
the bill and amendments were in conference whether the 
House would accept the bill without the burden of proof 
provision. It was then that Leader Clark "read the riot 
act." He pointed out that that was by far the most, if 
not indeed the only valuable amendment made to the Act 
by the bill, and gave notice that there would be no com- 
promise ; that insistence upon pruning out the burden of 
proof provision in conference would result in the defeat 
of the bill. 

Now the bill also contained provisions to create the 

67 



LAWS AFFECTING INTERSTATE CARRIERS 

Commerce Court, an institution very dear to the hearts of 
President Taft and his Attorney-General. These pro- 
visions had been accepted by both houses. So the admin- 
istration, thinking that the passage of the Commerce Court 
provisions was of the utmost importance, at length con- 
sented to the retention of the burden of proof provision 
rather than that there should be an entire failure of legis- 
lation. 

The judgment of the Commission, while giving 
effect to the provision, yet gave encouragement to the 
carriers to renew their efforts for an all round increase, 
upon a new and more persuasive showing. So it is with- 
in the possibilities that the Commission itself may, ere 
long, and without the aid of the courts, so construe even 
that saluary and just provision as to render it nugatory. 

Near the close of the Sixty-seicond Congress, the 
Senate after a lengthy hearing and investigation passed, 
and with Presidential approval made law a House bill for 
the valuation of railroad properties. It is no pleasant 
task for the writer to express adverse opinions concern- 
ing it ; but not only does it fail to improve the situation but 
will cause confusion, embarrassment and disaster. Like 
many instances of futile and makeshift legislation the act 
(in form amendatory to the Interstate Commerce Act), 
has the defect of excessive verbiage, and provides spe- 
cifically how many things shall be done, the method of 
doing which should have been left to the discretion and 
practical sense of the commissioners. But it possesses 
the serious fault of requiring a vast amount of needless 
appraisment, and throws into the problem of fixing rates 
extraneous matters, rendering its solution hopeless. It 
also leaves the way open for the consideration and treat- 
ment hereafter, as property, of the franchises of the rail- 
roads, these being as before explained, merely the muni- 

68 



LAWS AFFECTING INTERSTATE CARRIERS 

ments of monopolistic power. And being thus legis- 
latively recognized as property, no valuation claimed for 
them, no matter how great, can be successfully contested 
as being too high. But even these, serious as they are, are 
not the most serious objection to the Act, as will appear 
further along, (see pp. 1 18-124, 338-340). 

A fair and full criticism of the valuation act would not 
be practicable except as part of a general discussion of the 
railroad finance and rate question in its present aspects, 
having reference also to the power and present duty of 
Congress in the premises. Such discussion follows. 

In order that we may have before us a definite subject 
for discussion, not assuming it to be the last word as to 
the proper form of legilation, a definite legislative propo- 
sition in the form of a bill is appended hereto, to be 
frequently referred to as we proceed. (Appendix B.) 

Ignoring for all present purposes telegraph, water and 
pipe lines, and express companies, all common carriers 
subject to the act, there are over a thousand railroad 
corporations in the country hardly one of which is not in 
some respect or to some extent engaged in interstate 
commerce. It would be strange if a single little road any- 
where could be shown not to connect in some way either 
with a longer line or a water carrier whose business ex- 
tended directly or indirectly across a State line. And to 
the extent at least of the business done by virtue of such 
connection the corporations owning these short lines, 
though wholly within particular States, are subject to the 
Interstate Commerce Act. 

It is safe to say that not one line of railway wholly 
within a State is distinct, independent, and free from the 
control of some more important carrier with respect to 
rates on traffic going beyond or coming from beyond the 
State boundary. In fixing the proportion of a joint or 

69 



LAWS AFFECTING INTERSTATE CARRIERS 

through rate which it shall receive or retain, the value 
of the investment in or the entire value of the shorter 
line, if ever an element at all, is one of the simplest propo- 
sitions imaginable. But not one time in a hundred that 
such a rate might come before the Commission would 
the value of the properties of one of these lesser and sub- 
ordinate carriers become an essential fact. If it ever did 
become necessary in any particular case, the valuation 
could then be made by the Commission for that particular 
case without difficulty and without any provision for it in 
the law. In fact, however, a controlling interest in the 
stocks of the intrastate and of many short interstate lines 
is held by great railway systems, which are comparatively 
few in number. 

We may now advance another proposition. It is 
neither expedient, just, nor economical to- ascertain the 
values of all the railroad properties devoted to interstate 
commerce, and it will best subserve public as well as 
private interests if the investigation and valuation be by 
entire organized railway systems and limited to the im- 
portant and dominating even among these. With all the 
light obtainable from every source, with a force of en- 
gineers, experts, and other helpers equal in number to the 
standing army of the United States at work all the time 
gathering and tabulating data, even if when assembled 
any definite mind could grasp it all, the question of what is 
a reasonable rate or a just and reasonable schedule of 
rates would still remain a matter of opinion and judg- 
ment. Compromise and the arbitrary striking of averages 
are incidental to all rate fixing. It is as impossible 
now to fix rates which in the future will pay all outlays 
and leave a definite sum for dividends as it would be to 
fix next year's prices for eggs or potatoes, and for almost 
identically the same reasons. All those railway econo- 

70 



LAWS AFFECTING INTERSTATE CARRIERS 

mists, whether holding professorships in colleges or seats 
in Congress or on the Interstate Commerce Commission, 
who expect to make or to see made of rate fixing an exact 
science or even susceptible of becoming subject to any- 
definite rules or standards, are doomed to disappointment. 
Nevertheless it is possible to fall into habits of thought 
and accept principles and standards which being con- 
formed to in practice destroy public justice and deeply 
wrong the freight-paying public. 

Railroad monopoly has a basis so deeply imbedded in 
practices which have become customs, rules that have 
come to be recognized as municipal law, and terms that 
have taken their place in the language as truly applicable 
though meaning something else than that which they 
are made to represent, that one must be an analyst and 
a close student of railroad business to detect the impo- 
sitions. What the railroads collect from the people must 
be paid whether the contributors are willing or unwilling. 
Why not then speak of the aggregate of these tributes as 
of any other sum total of collections ? No ; the honest 
word "earnings" has been borrowed and is used, the 
better to forestall scrutiny and investigation on the part 
of the superficial reader of annual reports and railway 
statistics. When one such reader sees the word "earn- 
ings," he gets an impression of something of value given 
pursuant to an agreement to perform a service in which 
there has been an amicable mutuality from inception to 
liquidation. But when the railroads of the country use 
their power to exact from the nation's traffic over three 
billions of dollars, as they did during the last fiscal year, 
fifty per cent, of which was used to pay dividends on 
stocks, representing a comparatively small investment as 
capital, interest on bonds, a large percentage of which 
were issued to represent "trusteed" stocks, outrageously 

71 



LAWS AFFECTING INTERSTATE CARRIERS 

inflated, exorbitant salaries, and sums added to private 
railroad capital in permanent improvements, the use of 
the term "earnings," becomes a fraudulent perversion. 

It does not require a very deep study of finance to 
see that if a stockholder owns one-tenth of the stock of 
a company, capitalized at $100,000,000 and out of the 
income of one year, ten million dollars is used in adding 
permanent value to its property, he has enjoyed the full 
benefit of a dividend of ten per cent., whether or not 
he has received any dividend whatever, specified as such. 

To see the uses made of misleading terms, we only 
have to examine the annual returns reported by any 
railroad, or read the comments thereon in Wall Street 
newspapers. For instance, when in August, 1906, the 
Southern pacific declared a dividend on its stupendously 
inflated common stock, a New York paper congratulated 
Mr. Harriman and the other big stockholders on their 
being at last rewarded for their persistent faith in the 
stock "as an investment." Without going analytically 
into that corporation's financial history, it may be roughly 
stated that the controlling interest in this stock came to 
the original holders as pure bonus, and the balance of 
the stock was put on the market and bought at a ridicu- 
lously low price. But, in the same article, it was stated, 
without the slightest intention of being humorous, that 
since the reorganization $100,000,000 had been appro- 
priated out of net "earnings" to improve the property; 
that is to say, these stockholders had profited to that 
great extent. The $100,000,000 of net "earnings" prob- 
ably constituted an excess above reasonable rates and 
charges equal to that great sum. 

The Interstate Commerce Commission, in making its 
reports, has fallen into the groove well worn by railway 
officials in making annual reports. They indulge the same 

72 



LAWS AFFECTING INTERSTATE CARRIERS 

misleading assumptions and deceptive terminology em- 
ployed by the railroads. They have never segregated the 
net earnings so as to show the entire sum of actual profits, 
itemizing the vast amounts devoted to improvements 
under that head. In reporting the financial operations 
of a railroad for a given year, the Commission should 
explain, in phraseology with which the general pubHc 
are famiHar, the meaning of the technical terms used 
in railroad finance, so that the public would fully under- 
stand the full import of their reports. But this the 
Commission has thus far never done. 

Very few, either in or out of Congress, sufficiently and 
at all times appreciate the importance of transportation. 
It is the one thing under human control that is esssential 
to every human being in the world under modern condi- 
tions and not living in the most primitive and simple con- 
dition. Those uncivilized nations not dependent upon 
some form of transportation are so few in number or 
so obscure as not to be factors in present-day affairs. 
It is not only a universal necessity but one of common 
public interest. That may be one reason why so few 
outside the comparatively small class profitably engaged 
in conducting transportation devote special and persistent 
study to it. Few give more than a transient thought 
to the atmosphere so essential to life or to the water 
supply for domestic use until it is vitiated or its supply 
is reduced to the danger point. So with respect to trans- 
portation, especially by rail. Not only have we heretofore 
and do we now leave the management, the character of 
the service, and the rates to the care and keeping of the 
private corporations engaged in it, but we have allowed 
them almost exclusively to educate the people and their 
official representatives as to the rules and economic prin- 
ciples to govern herein. 

73 



LAWS AFFECTING INTERSTATE CARRIERS 

We are living in a haze or glare of illumination, but 
without much steady, instructive light. There was at 
a former period, a proper conception of the true relation 
of organized society to public-service agencies, but new 
ideas and strange doctrines — doctrines which are totally 
destructive of public justice and private right — have been 
sprung and industriously inculcated during the last two 
decades. They have found lodgment not only in the 
minds of the representatives of shippers' association, 
boards of trade and other commercial bodies, but of 
judges, Interstate Commerce Commissioners, Senators, 
and Representatives. The most dangerous and far-reach- 
ing of these is the economic view that, at any rate and 
aside from all other considerations, the corporation con- 
ducting business as a common carrier is entitled as of 
right to a fair return, usually asserted to be equal to the 
prevailing rate of interest, upon the value of the property 
devoted to the public service. Sometimes the expression 
varies, and it is said that the carrier is entitled to some 
such measure of return as the prevailing rate of interest 
on its investment. But the whole question of what is or 
what should be the proper basis or measure of rates is 
encumbered and befogged with inconsistencies and con- 
flicting theories, the result of which is se^ in the enact- 
ment of such bills as that passed in the closing hours of 
the Sixty-second Congress. 

Transportation has been a matter of common as well 
as of vital interest from the dawn of civilization. Carters, 
charioteers, draymen, and cabmen for hire were, by 
ancient law as well as by the common law of England, 
subject to regulation as distinct classes, and strict 
rules and principles of law were applied to them for the 
protection of the public. So when we say that the earlier 
decisions of our courts in cases involving corporations 

74 



LAWS AFFECTING INTERSTATE CARRIERS 

employed as carriers and in other public services, before 
interests in transportation became so vastly valuable and 
inextricably interwoven with all commercial and indus- 
trial activities, and prior to the creation of organizations 
for the propogation of error and confusion, are entitled 
to the greatest respect. The heresy that it is the duty 
of government to safeguard the earnings of any partic- 
ular class of business men up to the point of realizing 
a reasonable, or, indeed, any, profit upon their ventures 
is a most vicious form of paternalism which found no 
sanction or encouragement in the decisions of the courts 
or otherwise until within the last few years, during which 
serious attempts were made to regulate the rates for 
services by carriers in interstate commerce. 

It is not necessary to encumber the discussion with 
citations to the extent of making it resemble a lawyer's 
brief, but only to call attention to such decisions as are 
necessary to prove the preceding proposition. In 1896 the 
case of Covington & Lexington Turnpike Road Co. v. 
Sandford (164 U. S., 578), involving rates or tolls to be 
charged over a turnpike, was decided. We see, upon a 
moment's reflection, that the question there was exactly 
the same as that raised in any case involving a railroad 
rate. In that case successive Acts of the Legislature of 
Kentucky had greatly reduced the tolls until in 1896 the 
company sought to prevent the linal reduction by suit in 
court on the ground that the rate fixed by it was confisca- 
tory, but in the proofs it failed to show that the rate did 
not yield some small profit or even if it did not that in- 
solvency would not be attributable to competition and loss 
of business rather than to the reduction of rates. 

Here are some of the principles stated by the Supreme 
Court of the United States, after stating the facts and 
quoting literally from the complaint: 

75 



LAWS AFFECTING INTERSTATE CARRIERS 

It is proper to say that if the answer had not alleged, in sub- 
stance, that the tolls prescribed by the act of 1890 were wholly 
inadequate for keeping the road in proper repair and for earning 
dividends, we could not say that the act was unconstitutional 
merely because the company (as was alleged and as the demurrer 
admitted) could not earn more than 4 per cent, on its capital 
stock. It cannot be said that a corporation is entitled, as of 
right, and without reference to the interests of the public, to 
realize a given per cent, upon its capital stock. When the ques- 
tion arises whether the legislature has exceeded its constitutional 
power in prescribing rates to be charged by a corporation con- 
trolling a public highway, stockholders are not the only persons 
whose rights or interests are to be considered. The rights of 
the public are not to be ignored. It is alleged here that the 
rates prescribed are unreasonable and unjust to the company and 
its stockholders. But that involves an inquiry as to what is rea- 
sonable and just for the public. If the establishing of new lines 
of transportation should cause a diminution in the number of 
those who need to use a turnpike road and, consequently, a dim- 
inution in the tolls collected, that is not, in itself, a sufficient 
reason why the corporation operating the road should be allowed 
to maintain rates that would be unjust to those who must or do 
use its property. The public cannot properly be subjected to un- 
reasonable rates in order simply that stockholders may earn divi- 
dends. The legislature has the authority, in every case, where its 
power has not been restrained by contract, to proceed upon the 
ground that the public may not rightfully be required to submit 
to unreasonable exactions for the use of a public highway es- 
tablished and maintained under legislative authority. If a cor- 
poration cannot maintain such a highway and earn dividends for 
stockholders, it is a misfortune for it and them which the Con- 
stitution does not require to be remedied by imposing unjust 
burdens upon the public. 



The court here plainly said in effect that the matter 
of first importance was the interest of the public in hav- 
ing reasonable rates, and that that should outweigh all 
other considerations so long as any profit whatsoever was 
in sight for the company and its stockholders. The court 
refused to hold an act of the legislature fixing rates to 
be confiscatory until a point of reduction of rates was 
reached at which business could only be done at a loss 
The court did not deem it necessary to set forth the rea- 
soning underlying this rule in that case, but did state them 

76 



LAWS AFFECTING INTERSTATE CARRIERS 

in a subsequent case, Cotting v. Kansas City Stock-yards 
Co. (183 U. S., 79), as follows: 

If in such a case an individual is willing to undertake the 
work of the State, may it not be urged that he in a measure 
subjects himself to the same rules of action, and that if the body 
which expresses the judgment of the State believes that the par- 
ticular services should be rendered without profit he is not at 
liberty to complain? While we have said again and again that 
one volunteering to do such services cannot be compelled to 
expose his property to confiscation, that he cannot be compelled 
to submit its use to such rates as do not pay the expenses of the 
work, and therefore create a constantly increasing debt which 
ultimately works its appropriation, still is there not force in the 
suggestion that as the State may do the work without profit, if 
he voluntarily undertakes to act for the State he must submit to 
a like determination as to the paramount interests of the public? 
* * * The authority of the legislature to interfere by a reg- 
ulation of rates is not an authority to destroy the principles of 
these decisions, but simply to enforce them. Its prescription of 
rates is prima facie evidence of their reasonableness. In other 
word, its is a legislative declaration that such charges are rea- 
sonable compensation for the services rendered, but it does not 
follow therefrom that the legislature has power to reduce any 
reasonable charges because by reason of the volume of business 
done by the party he is making more profit than others in the 
same or other business. The question is not always what does he 
make as the aggregate of his profits, but what is the value of 
the services which he renders to the one seeking and receiving 
such servies. 

The latter was not a railroad case, but like principles 
apply to it. The gist of these decisions is that it is for 
Congress or the Interstate Commerce Commission in its 
place or stead to fix the rates, which the courts should 
presume to be just and reasonable until the carriers affect- 
ed thereby show them to be confiscatory; that it is not 
sufficient merely to show that the rates are low or even 
unreasonably low, which being a matter of opinion is not 
susceptible of exact proof ; that a public-service corpora- 
tion assumes duties pertaining to government, such duties 
as the Government might, except for the interposition of 
the individual or corporation, itself perform for the peo- 
ple to be served; and finally that so long as the govern- 

77 



LAWS AFFECTING INTERSTATE CARRIERS 

mental authority fixing the rate stops short of a depriva- 
tion of all profit, or of any whatever, the party affected 
can not complain, since he may at any time abandon the 
service and allow it to be resumed by the Government. 
So the proper question in all such cases is, not whether 
the rate is reasonable in point of profit-yielding power, 
but reasonable from the standpoint of the man who pays 
it; and this consideration ought to control the case, not- 
withstanding that the rate may be low, or even unreason- 
ably low, until the actual conficatory point is reached. 

But the Covington Turnpike case was the last of a long 
line of decisions beginning with Munn v. Illinois. The 
railroad economists had, by 1897, when Smith v. Ames 
(169 U. S., 466) was decided, succeeded in creating a 
hesitating state of judicial mind and a reluctance to carry 
forward into cases involving railroad rates the principles 
which they had previously established and adhered to. 
The decision in the last-mentioned case was, we might 
say, rather hazy. It was what in chemistry would be 
called a blend, rather than a compound. The sound 
views in prior cases were ingenuously mixed with the 
self-serving views of the railroad lawyers and economists. 
In one part of the opinion it was said that the sole cri- 
terion was the value of the property devoted to the pub- 
lic use, while in another several other matters were men- 
tioned to be properly considered, and, among them, the 
market value of stocks and bonds. It was said (p. 546) : 



We hold, however, that the basis of all calculations as to the 
reasonableness of rates to be charged by a corporation maintain- 
ing a highway under legislative sanction must be the fair value 
of the property being used for the convenience of the public. 
And in order to ascertain that value, the original cost of con- 
struction, the amount expended in permanent improvements, the 
amount and and market value of its bonds and stock, the present 
as compared ith the original cost of construction, the probable 
earning capacity of the property under particular rates prescribed 

78 



LAWS AFFECTING INTERSTATE CARRIERS 



by statute, and the sum required to meet operating expenses, are 
all matters for consideration, and are to be given such weight 
as may be just and right in each case. We do not say that there 
may not be other matters to be regadred in estimating the value 
of the property. What the company is entitled to ask is a fair 
return upon the value of that which it employs for the public 
convenience. On the other hand, what the public is entitled 
to demand is that no more be exacted from it for the use of a 
public highway that the services rendered by it are reasonably 
worth. 



There may be those blessed with sufficient mental skill 
or subtlety to state how all the matters here mentioned can 
be brought together, with other matters intimated but not 
specified, as a basis of fixing a rate. But there are surely 
not many, even among the railroad experts in the con- 
gressional lobby, equal to the task. If the value of the 
property is to receive principal consideration, as the court 
asserts, then what consideration should or can the market 
value of stocks and bonds receive ? 

We need not dwell upon one or two decisions of the 
Supreme Court and several by the Interstate Commerce 
Commission and the Federal courts intermediary between 
those above referred to and that in Wilcox v. Consoli- 
dated Gas Co. (212 U. S., 19). The latter case evidences 
progressive strides in false and vicious economic educa- 
tion. Now, the Consolidated Gas case presented exactly 
the same issue as that presented in any railroad rate case. 
The body of gas consumers answer to the whole body of 
transportation consumers on the lines of a railway system 
anywhere, and the relation of the gas company to the pub- 
lic is in all essentials similar to that of the railroad com- 
pany. While the action of the court was not conclusive 
of the ultimate rights of the parties, yet the views of the 
court, expressed in the course of its opinion, are signifi- 
cant of its changed economic attitude since the decisions in 
the turnpike and stockyards cases. 

79 



LAWS AFFECTING INTERSTATE CARRIERS 

There must — 
Says the court — 

be a fair return upon the reasonable value of the property at the 
time it is being used for the public. 

The word "must," inserted by the court in lieu of the 
words "may, on condition that the rates to consumers are 
just and reasonable," contained in earlier opinions, marks 
the great chSnge wrought by the schools for the propaga- 
tion of economic error maintained in this country. Tliey 
are maintained out of the vast profits realized on exploita- 
tion of the public through exorbitant rates. But the court 
declared that the franchises of the company, which it was 
admitted did not cost it a penny and represented merely 
the voluntary abdication by the State of New York of a 
particle of its sovereignty, should also be valued as part 
of the aggregate upon which the consumers should be 
compelled to pay rates. The court said : 

It cannot be disputed that franchises of this nature are prop- 
erty and cannot be taken or used by others without compensa- 
tion. 

We do not fully comprehend the significance of this dec- 
laration, principle, or dogma of rate fixing unless we re- 
flect that the Consolidated Gas Co. is an absolute monop- 
oly, with the usual history of such monopolies cf which 
flagrant dealings with municipal authorities and scandal- 
ous stock inflations were prominent incidents, and that the 
so-called franchises simply stand for monopolistic power 
acquired through practices which one would not care 
to properly designate unless willing to consume sufficient 
space for the proofs. But that gas company, like all such, 
and like all railroad companies, possesses real taxing 
powers within and throughout the territory in which it 
operates. The folly and injustice of placing a valuation 
upon the monopolistic sovereign power after valuing all 

80 



LAWS AFFECTING INTERSTATE CARRIERS > 

tangible assets is readily seen. But that is a right or priv- 
ilege that municipal monopolies and railroad companies 
now insist upon, and what the courts and Interstate Com- 
merce Commission now concede. 

That the assets of the Consolidated Gas Co. represented 
little, if any, original investment but what Thomas W. 
Lawson 'would call "made" dollars, is shown by another 
part of the opinion, where it said : 

The evidence shows that from their creation down to the 
consolidation in 1884, these companies had been free from legis- 
lative regulation upon the amount of the rates to be charged for 
gas. They had been most prosperous and had divided very large 
earnings in the shape of dividends to their stockholders, dividends 
which are characterized by the Senate committee appointed in 
1885 to investigate the facts surrounding the consolidation as 
enormous. The report of that committee shows that several of 
the companies had averaged, from their creation, dividends over 
16 per cent., and six companies in the year 1884 paid a dividend 
upon capital which had been increased by earnings, as in the case 
of the Manhattan and the New York, of 18 per cent., and, had it 
been upon the money actually paid in, it would have been nearly 
25 per cent. 

And in a subsequent caes, it was decided that 7 per cent, 
was not an unreasonable profit for railroads. 

It is these views and similar views of the courts and 
their echo and repetition by Interstate Commerce Com- 
missioners which have led to offering the appended bill. 
The true theory is that the Government shall regulate and 
control rates. But the views here quoted and to be quoted 
would make the Government the guarantor and under- 
writer of profits, and the vice of such views is but slightly 
alleviated, if at all, by the use of the qualifying word 
"fair." The Government has no better authority from 
the people or from the laws of the land to insure fair 
profits to a particular class of business men than to in- 
sure to them the receipt of an unfair or exorbitant profit. 
The one rule makes of public-service corporations the ser- 
vants of the public, which was the original and is the 

8i 



LAWS AFFECTING INTERSTATE CARRIERS 

proper conception of them. The other rule makes of 
them the unbridled masters of the people. The proper 
view is that the citizens of the Republic are freeholders 
in their relation to common carriers and that the latter 
are their agents. The perverted view adopted by 
judges and commissioners makes every taxpayer a 
taxpayer to each and all of so many little sovereignties 
or municipalities within their own domain and hewers of 
wood and drawers of water under sublords ruling them 
in the name and right of private corporations clothed 
with sovereign powers of taxation and exploitation. In 
the report of the commission for 1908 on the question 
of what constitutes the reasonable rate we find this lan- 
guage : 

When, however, all has been said along these lines that may 
properly be said, it nevertheless remains as a fundamental prop- 
osition that the actual investment in any enterprise needed for 
giving the public adequate transportation facilities is entitled to 
and should have a reasonable return, and no more than a reason- 
able return, in the form of a constant profit; and a reason- 
able schedule of rates is one that will produce such a result. 

So, here we see the words "constant profit" used ; so, 
here the Commission declares its policy to be to fix its 
eyes constantly and exclusively upon railroad interests 
until they are secure in receipt of a "constant profit." 
And the same in some form is to be found in each subse- 
quent annual report. The statement is on its face plaus- 
ible and well calculated to deceive one who is simple- 
minded or indiscriminating in thought and expression. 

The true rule is that if the public be well served at 
fair and reasonable rates, or rates fixed under really com- 
petition conditions, then there should be no reduction of 
rates so long as they produce only a reasonable return 
on the property. This rule of rate-making compels the 
rate-fixing authority to begin at the shipper's side of the 

82 



LAWS AFFECTING INTERSTATE CARRIERS 

question and to only take up the carrier's side if that 
becomes necessary; that is to say, when it is alleged that 
fair and reasonable rates for the shipper are confiscatory 
of the carrier's property. It is no valid objection to 
rates which are only fair and reasonable from the ship- 
per's standpoint that they are unreasonably low from the 
carrier's standpoint, because even unreasonably low rates 
may yield some profit, however small, and be therefore 
nonconfiscatory. What the courts and commissioners 
have done in recent years was to start the consideration 
of each question from the carrier's side ; to start with this 
heresy that at all events, aside from all other considera- 
tions and regardless of the effect upon the fortunes of 
shippers, the carrier was entitled not merely to protection 
against a confiscatory rate, but to a return, usually placed 
at or a little above the rate of interest on mortgage loans. 
To give such a rule universal application is to guarantee 
not only the solvency but the financial success of the most 
recklessly, dishonestly, and wastefully managed roads in 
the country, or those which but for the Government sanc- 
tion thus given to exploitation of the public would have 
to go into liquidation and reorganize on a sound and hon- 
est basis. An exemplification of the practical application 
of this modern theory is seen in the Spokane rate case, 
where the commissioners decided that rates which satis- 
fied the financial needs of the Northern Pacific and gave 
the holders of its enormously inflated stocks the dividends 
which they demanded were just and reasonable, though 
the same rates in the case of its competitor, the Great 
Northern, yielded nearly twice the same dividend rate in 
addition to enabling it to pile up a large surplus for ex- 
tensions and outside investments. 

It was in view of the earlier decisions of the courts that 
the words "fairly remunerative" in the provision requiring 

83 



LAWS AFFECTING INTERSTATE CARRIERS 

the Commission to ascertain and enforce reasonable rates 
were stricken out of the Hepburn bill in the Senate in 
1906, as the record of debates shows. But, contrary to 
congressional intent, as thus expressed, these words were, 
by the commission, in the Spokane case and in other 
cases, interpolated by construction as part of the statute, 
and the real purpose of the law nullified. 

Another proposition, well established by former de- 
cisions, has been completely ignored or overlooked 
by the Commission, as well as the courts, in recent 
years; that is, that no loss, whatever its form or 
extent, is protected by the rule against confiscatory 
rates unless resulting directly from the action of a 
legislative or official body, though such loss might 
be so great as to end in insolvency. If in fixing reason- 
able rates on one road another in competition with it finds 
its rates so reduced that it can not do business except at a 
loss, that should be attributed to the operation of compe- 
tition and only indirectly, if at all, to the action of the 
Commission. The decision of the Commission in such a 
case would be unassailable and invulnerable as against any 
constitutional objection. The disastrous and far-reaching 
effects of the non-observance of this principle can scarcely 
be exaggerated. The counter proposition that the weaker, 
worse managed, more injudiciously located or construct- 
ed facility, or the one whose mechanical form has been 
antiquated and superseded must nevertheless be secured 
and safeguarded against loss and the possibility of de- 
struction from competition has found favor in the official 
minds of the commissioners. Outside the commission 
there is no help and but little sympathy for one who 
has been struck down by the wheels of progress ; but with 
carriers in interstate commerce, under the Interstate 

84 



LAWS AFFECTING INTERSTATE CARRIERS 

Commerce Act as paternally administered by the Com- 
mission, it is very different. 

The whole situation is best shown and illustrated by a 
discussion of the history of some of the trunk lines, and 
a statement of the relations between the carriers between 
the Atlantic seaboard and Chicago and other cities of the 
Central West. It is unnecessary, however, to occupy space 
with the details of that history which must be already well 
known to many in Congress. But in the case of what 
are known as the trunk lines, there is presented a striking 
and important illustration of results flowing from the 
adoption by the commission of the "constant-profit" 
theory of rate making. The rates of the Pennsylvania 
and New York Central, whose lines reach all the impor- 
tant business centers of the West, have been fixed exclu- 
sively by the railroad managements themselves, with no 
limitations whatever except with reference to what the 
traffic would bear. Their rates have never been exam- 
ined or investigated by the Commission as to their reason- 
ableness or unreasonableness. It appears to have been 
considered entirely proper that the public should pay 
these companies considerably more for a given passenger 
service than is paid for the same service to the Baltimore 
and Ohio, the Erie, and certain other trunk lines. Now, 
it is undoubtedly true, a fact admitted by the railway 
managers at the rate-advance hearings in 1910, that a 
hard and fast agreement exists between all the trunk lines, 
and that they maintain a central association, or bureau, 
in New York City. Their combination would, however, 
be powerless to maintain unreasonable rates without the 
recognition given by the Commission to the "constant- 
profit" theory. But with that recognition and adherence 
to their established practices, the associated trunk lines 
are able to exactly reverse the natural order and substi- 

85 



LAWS AFFECTING INTERSTATE CARRIERS 

tute self-interest for the interest and welfare of the pub- 
lic. If the economic law of competition were allowed to 
operate in trunk line territory the lowest rates between 
the East and West would be those over the most natural 
and direct and the best equipped routes — that is to say, 
over the New York Central and Pennsylvania. They 
have eliminated all difficult grades and curves, duplicated 
trackage, acquired terminal facilities, and provided them- 
selves with superior motive power and rolling stock until 
they can move a given tonnage over a long distance at 
less than one-half what the same would cost over other 
and inferior roads. 

By acting secretly in concert and by constant read- 
justment and classifications of rates, thus working them 
up from one level to another, they have escaped entirely 
the regulative powers of the Commission and become a 
law unto themselves. The Commission could not now, 
under existing law, even if so inclined, examine and 
pass upon the rate question in its application to the whole 
trunk-line situation and establish in trunk-line territory 
a system of rates. Indeed, Congress has heretofore 
withheld from the Commission any such power. With- 
out it, it is idle to talk about any general rule for ascer- 
taining the reasonable rate, and the rule of a constant 
profit for the carriers, in addition to being destructive of 
all other interests, is a pure invention to serve the selfish 
purposes of the railroads. 

The difficulty of fixing reasonable rates for a single 
line of railroad lies in the great differences between con- 
ditions affecting railroads which under normal conditions 
would be in competition. In this same trunk-line territory 
are lines of varying financial strength and condition with 
reference to the cost of operation and volume and profit- 
ableness of traffic. For instance, there is in trunk-line 

86 



LAWS AFFECTING INTERSTATE CARRIERS 

territory the Pennsylvania and the Erie. The financial 
condition of the Pennsylvania is such that it can refund 
its bonds at 3 and 3^ per cent., and its stocks, though 
inflated and consisting largely of duplications through ab- 
sorption of subsidiary lines, is far above par, and the 
company could continue its 6 per cent, dividend rate with 
even lower rates than it now charges and still accumu- 
late large annual surpluses. The Erie, according to tes- 
timony given by its vice-president in the rate-advance 
cases, has the most pressing financial needs, paying no 
dividends on its common stock and being under an im- 
mediate necessity of raising $13,000,000 for general 
improvements. He also stated that $35,000,000 was 
required to put it in effective condition of construction 
and equipment. Now, the rates which are necessary to 
keep so weak an enterprise as that in a competitive posi- 
tion as against the stronger trunk lines must necessarily 
render the same rates on the business of the latter exor- 
bitant. To reduce its rates on through traffic without 
a reduction also of the Erie's rates, or to increase the 
Erie's rates without also increasing theirs, would do the 
Erie no good, because the immediate effect would be to 
divert from it most or all of the Erie's through busi- 
ness. So, in order to make a practical application of the 
theory of a constant profit to all carriers and keep water- 
logged enterprises afloat, the public must pay annual 
bounties amounting in the aggregate to hundreds of mil- 
lions of dollars over and above what the shippers con- 
sider just and reasonable rates. 

The uniformity and stability of rates required by the 
business interests of the country can never be secured 
through the commission so long as its functions and 
powers are limited as at present by the Interstate Com- 
merce Act. It must have power to revise and readjust 

87 



LAWS AFFECTING INTERSTATE CARRIERS 

entire schedules, and not only entire schedules of par- 
ticular roads, but of whole systems and by large areas, 
thereby producing uniformity, justice, and reasonable- 
ness on all lines ; for instance, on all the lines in trunk- 
line territory, on all lines in central, western, and south- 
western territory, simultaneously ,and from time to time, 
as often as is necessary to maintain justice, reasonable- 
ness, and equal treatment of shippers. The. Commis- 
sion must be authorized to harmonize inconsistent rates, 
to equalize discriminating rates, and to reduce high rates 
wherever found. These powers it can not exercise with- 
out the enlarged powers which would be conferred by the 
adoption of some such as the appended bill. The only 
uniformity provided for in the Interstate Commerce Act 
is uniformity in the treatment by each railroad of its 
own patrons. The second section of the Interstate Com- 
merce Act prohibits a common carrier from charging one 
person more than another for the same service, but it 
does not prohibit a carrier from charging one person 
more or less than another railroad charges the same per- 
son for an equal service. 

The third section of the Interstate Commerce Act for- 
bids a carrier giving any undue preference or advantage 
to any person or locality, or kind of traffic, over another. 
But this only applies to the action of a railroad toward 
the people or places served by it. It does not protect 
them from monopolistic and exorbitant rates when no 
competition is at hand, and so, too, with reference to the 
long-and-short haul provision in the fourth section. 

To enable the commission to fully perform its duties, 
it should have power, as is here provided for, to increase, 
as well as to reduce, a rate. Without this additional 
power it can not effectively harmonize and equalize 
rates or deal with entire schedules. 

88 



LAWS AFFECTING INTERSTATE CARRIERS 

Two principal reasons have been heretofore urged 
against conferring the power upon the Commission to 
formulate or revise schedules. The first was presented 
by the railroads. They claimed the right to initiate all 
rates themselves. They urged that to confer so broad 
a power upon a governmental agency was to take from 
them the only power which rendered their properties of 
any value. The second objection was constitutional, 
though probably originating in the same fertile brains of 
counsel for the railroads. It was argued that if the Com- 
mission could adopt and put in force rates by wholesale 
for one company, it could do so for all at once, which 
was not merely applying a statute to facts, but the exer- 
cise of outright legislative functions. The constitutional 
objection was not clearly, if at all, distinguishable from 
that based upon policy. Without turning aside to debate 
the issue, it is safe to assert that both objections are un- 
tenable. The Supreme Court in the Southern Pacific 
Lumber rate case, decided last year, limited the con- 
struction of the powers of the Commission under the 
present law as has just been stated. 

The people are disadvantaged by their environment in 
the very midst of events constantly transpiring all around 
them in the world of railroad construction, finance, and 
operation. Transportation of persons and property are 
interwoven with every-day aifairs and existence, so that 
we have failed to see the trend and drift of the matter, or 
to discern the final solution of the problems presented to 
us. The figures representing the present financial status 
of the railroads mystify us by their magnitudes. We 
can only understand their significance by comparisons. 

The present capitalization upon which the people pay 
interest and dividends by way of rates and fares is, ac- 
cording to the latest report of the Interstate Commerce 

89 



LAWS AFFECTING INTERSTATE CARRIERS 

Commission, nineteen billions of dollars. In so far as 
this vast sum represents actual investment, it is for the 
most part investment made by the people who use — 
and who have no choice in the matter — the facilities pro- 
vided, comparatively few of whom own any of the stocks 
or bonds. Yet the holders of these are constantly re- 
ferred to as investors whose investments must be safe- 
guarded against any diminution of returns which have 
gone on increasing proportionately as their property has 
been added to by accretions from collections which their 
patrons had no option but to pay. 

The theory upon which the appended bill is based is 
that existing rates on the strong and dominating lines in 
each group of railways are kept too high in order that 
their weaker competitors may enjoy, as of right, this 
constant profit ; that this ignores the right and interest in 
the subject of the public; that the commission should be 
constrained by law to take up the rates on each of these 
stronger lines as a schedule or body of rates and reduce 
them to the point of reasonableness and justice to the 
shippers, ignoring the claims of the stockholders unless in 
the course of the reduction the confiscatory point is 
reached. The rates of the weaker lines are now regu- 
lated by their stronger competitors, the rates of the latter 
not being regulated at all. If the Commissioners be given 
power to take up the schedules of the strong roads upon 
their own initiative and without having to wait for com- 
plaints, and to regulate them, by which is meant reduce 
their rates, the rates of the weaker lines will be thus in- 
directly and automatically regulated, without attention 
and labor on the part of the Commission. That is what is 
in mind in confining the physical valuation to selected 
systems and dealing with all the lines and subsidiaries 
constituting such systems in their entireties. The purpose 

90 



LAWS AFFECTING INTERSTATE CARRIERS 

is to have regulation assume a direct, practical, and effec- 
tive form, to be more economical, and not to continue as a 
mere farcical but costly pretense, as it has been thus far. 

There is nothing, either in the law or in what is popu- 
larly known as equity, as applied to matters of public 
concern, to warrant the Commission in giving considera- 
tion to the alleged financial necessities of any corpora- 
tion. A railroad corporation is not a public institution, 
nor public in any other sense which would place its 
affairs under the care of the Government or make it the 
duty of the Commission to provide for its safe deliver- 
ance from the inconvenience of scant revenues, or even 
from insolvency. The railroads are not of public con- 
cern in any such sense, and their managers do not so con- 
sider them, when discussing their legal relation, except 
when insisting upon being safeguarded by the Govern- 
ment through high rates against the results of each 
other's competition. No matter how important any 
single railroad company may be to a particular city or 
section, not one of them is of common interest to all the 
people of the nation. The transportation business of the 
whole country, which practically resolves itself into 
what may be designated as "the railroad business," is of 
general, or rather, of universal interest; and it is that 
business rather than any particular railroad corporation 
which Congress has been empowered by the Constitution 
to regulate. The proposition that the financial welfare 
or the financial affairs of any particular railroad ought to 
be considered by the Commission as the subject matter 
or part of the subject matter of any rate case or question 
before them, or otherwise than as a limitation to be 
pleaded in a proper case by the particular carrier in- 
volved, was never within the purview of any legislation 

91 



LAWS AFFECTING INTERSTATE CARRIERS 

thus far enacted, but was a pure invention by commis- 
sioners. 

The services and the rates are the only matters per- 
taining to common carriers with which the pubHc have 
to deal or with which they come in contact. They have 
nothing to do with internal management, nor should their 
interest in just and reasonable rates be confounded or 
complicated with those of stock and bond holders. The 
commission would have plenty to do if they looked care- 
fully after the rates and service. 

The provision of the act of 1912 injecting the sub- 
ject of stock and bond issues into the scheme of valuation 
is one which is fraught with mischief. It imposes upon 
the Commission a useless, if not in fact an impossible 
task. But the strongest argument against it is that it 
carries with it an assumption that the Government is 
under some sort of obligation to the carriers with respect 
to their internal finances and private relations to the 
holders of stocks and bonds. An inquiry, such as is pro- 
vided for in the act, as to the minute history of every 
issue of railroad stocks and bonds is one from which a 
commission composed of many members and provided 
with unlimited revenues might well wish to be excused. 
It appears to be as impossible as it is useless ; and if the 
expenditures by the Commission during recent fiscal years 
when it was engaged in only its routine duties may be ac- 
cepted as an indication of the cost of the work directed 
by the act to be done. Congress would do well to give 
that phase of the subject serious consideration. The 
estimates of cost given by the Commissioners are mere 
guesses and not very shrewd guesses at that. It will 
take several years to obtain the data, and at the end of 
that time it will be fit only for the junk heap. So many 
changes will have occurred that the data would afford no 

92 



LAWS AFFECTING INTERSTATE CARRIERS 

satisfactory light on any question properly before the 
Commission, even if it could ever be placed in manageable 
form. None of the Commissioners nor any member of 
any committee which considered die bill was able at the 
hearings or is able now to suggest any definite use for the 
outcome of all this labor and expense. No one can suc- 
cessfully dispute the power of Congress to obtain all the 
information specified in the bill and to spend all the 
money necessary to obtain it. But the theory of rate- 
making underlying, it is peculiarly and stupendously 
vicious. The appended bill provides for a fair valuation 
of the properties of not more than ten great dominating 
railway systems, not with a view to making the values 
found a basis of rates, but in order that when the Com- 
mission undertakes to establish a rate or schedule of 
rates in any particular instance, it may have at hand a 
minimum standard below which it cannot go. That is 
not any standard prescribed by Congress, but that already 
fixed in the Constitution. The rule given by Congress to 
the commission that all rates shall be just and reasonable 
is the equivalent to no rule at all and leaves with the 
Commission unlimited arbitrary power anywhere and 
everywhere above the confiscatory point. 

But the power should be justly and wisely executed 
in the public interest. And inasmuch as the Commis- 
sion has been controlled in the exercise of power by 
theories which were subversive of public interests and of 
great practical and unfair advantage to special interests, 
it is provided in the appended bill that there shall be a 
complete reorganization of the Commission. It contains 
a comprehensive new grant of powers to the Commis- 
sion, as heretofore explained, and the people are entitled 
to have these broad and far-reaching powers exercised by 
men who are untrammeled by their records and unfet- 

93 



LAWS AFFECTING INTERSTATE CARRIERS 

tered by their preconceptions of duty under the law. It 
is provided that the terms of oi¥ice of the present incum- 
bents shall end upon the appointment of their respective 
successors, but the present incumbents are not disquali- 
fied for reappointment. The membership of the Com- 
mission is increased from seven to fifteen, a provision 
which is obviously proper and necessary if these impor- 
tant and comprehensive new powers and duties are 
conferred. 

The revision of a vast schedule of rates for one of our 
great systems, affecting directly the salability and market 
price of thousands of articles of commerce, consulting 
and conserving the material interests of all the people of 
large sections of the country, is of superior importance to 
a revision of one rate, and if the power conferred 
upon Congress herein is not to remain a dead letter, or 
its exercise not to be purely farcical and perfunctory, this 
great power must be lodged somewhere. The policy of 
vesting it in a Commission is too firmly established to be 
reversed ; and the time has come when the work of regu- 
lation must be begun in earnest. The matter can not 
longer be trifled with on any shallow pretext or false 
theory whatever. It is a work having the practical 
effect of legislation, though the unquestionably constitu- 
tional form will be administrative. 

There are those, and their number is not small nor are 
they without influence, who will object to the giving of 
such large discretionary powers to a Commission. But to 
continue the methods pursued thus far is to make a mere 
pretense of regulating the rates and service of the rail- 
roads. Congress, after illegalizing all except just and 
reasonable rates, has left the determination of the ques- 
tion of what rates are just and reasonable entirely to the 
Commission with the due process of law clause of the 

94 



LAWS AFFECTING INTERSTATE CARRIERS 

Constitution, forbidding confiscation, as an irreducible 
minimum, with all the traffic will bear as the maximum 
limit. The policy and practice of the present Commis- 
sioners has, as a general rule, allowed the railroads to 
reach, practice and maintain the maximum. As to what 
constitutes a just and reasonable rate is, and under any 
plan of regulation through a commission that can be de- 
vised must ever remain, largely a matter of opinion, and 
yet it should be understood by the present commission 
and by any commission that may be appointed hereafter 
that the freight-paying public will consider any rate too 
high which gives the carrier too much of the margin of 
profit between production and sale, a margin which is 
represented in the selling price and must be divided be- 
tween producer, carrier, and one or more intermediaries, 
and that any schedule or system of rates is too high 
which produces in any one year a large surplus to pay 
dividends on watered stock, or to be laid out in the same 
year in additions and permanent improvements. To 
merely say that rates on a given kind or class of goods, 
or on a given commodity, are too low, or that they do 
not yield enough revenue to suitably compensate for the 
service performed in their transportation proves nothing. 
Nor would the fact that the service actually cost more 
than the rate charged necessarily justify an increase of 
the rate, since many services of carriers are performed 
at rates which do not equal the cost. Nor would evi- 
dence that any single rate produced less revenue than 
the outlay to have the service performed be accepted as 
satisfactory proof that such rate was confiscatory or 
even uneconomical. 

These points have been decided and settled from time 
to time by the courts and by the Commission itself, and 
by such decisions have conclusively established the neces- 

95 



LAWS AFFECTING INTERSTATE CARRIERS 

sity for the consideration by the Commission of the rela- 
tion of rates and of the combined effect of entire sched- 
ules of rates. The commission has in fact, and neces- 
sarily, exercised the power to consider such relation, to 
make comparison of particular rates in issue with rates 
not in issue — in short, to consider correlated rates in 
order to reach anything like intelligent conclusions, not- 
withstanding that the courts have, as before shown, de- 
nied to the Commission the exercise of any such ample 
and essential powers. 

The railroad managers and representatives earnestly 
and even persistently cultivate in the people those hopes 
and fears which make for corporate enrichment and pop- 
ular loss. To them and their activities more than to 
aught else is due that morbid appetite for commercial 
conquest which has led to a wasteful exploitation of our 
diminishing natural resources. If a few square miles 
are found remote from railroad lines, the residents of 
that area are soon convinced of their complete isolation 
from the balance of the world and made to believe that 
the only thing needed to insure them plenteous prosperity 
and content is the advent of a railroad. And urban 
populations are in divers ways and through various chan- 
nels ^nd instrumentalities of false instruction con- 
vinced that any legislative interference with railroad ex- 
tension is a dire menace to progress, and that the finan- 
cial condition of the railroads, reflected in earnings and 
dividends, is the true barometer of general business, and 
that a showing therein of a large balance in favor of the 
railroads constitutes the mainspring of universal as well 
as individual prosperity. Much that is promulgated on 
this subject begs the question and ignores not only the 
presence in the statute books of the Interstate Commerce 
Act but also the public duties of the carriers. 

96 



LAWS AFFECTING INTERSTATE CARRIERS 

With a view to promoting general prosperity the car- 
riers would compel large contributions from the purses 
of rate payers to those who in the opinion of the railroad 
economists are best qualified to bring about and maintain 
it by the circulation of money that such extensions would 
require. The railroad corporations dominate all other 
business, in addition to having absolute dominion over 
their own, and often rob particular sections of the coun- 
try of the aavantages which would naturally belong to 
them by reason of water transportation or otherwise. And 
the brazen claim is now made that their demand for 
high rates should be sustained in order that the shortest 
through route to general prosperity is by way of in- 
creased employment for labor by them, to be paid from 
large surpluses, only possible if high rates be charged 
and collected. 

There was recently published an article by a leading 
railway president and publicist containing an eulogistic 
passage concerning the tendency of present freight ad- 
justments to give to purchasers the choice of supply from 
various producing regions, inducing and compelling com- 
petition to hold down prices and give them uniformity. 
Thus we see that the railroads, while claiming and re- 
ceiving exemption from each other's competition and 
clamoring at the doors of Congress to have legalized their 
practice of eliminating competition by combination, yet 
claim and exercise the prerogative of prompting and in- 
tensifying it among persons engaged in the production 
and sale of commodities. 

The Interstate Commerce Commission made a report 
in 1904 showing that the railroads were then realizing 
dividends on their dividend-paying stocks of 5j4 per 
cent. They also showed that at least one-half of the 
stocks did not represent any original investment. So 

97 



LAWS AFFECTING INTERSTATE CARRIERS 

the equitable owners of the railroads were then enjoy- 
ing at least 1 1 per cent, net profits on investments. Since 
that report was made there have been vast issues of ^ | 
stocks, estimated by competent authorities at $5,000,000,- 
000. That means upon this new doctrine of "a constant 
profit" a vast inflation of the mortgages held by the rail- 
road financiers ostensibly upon the properties, but in real- 
ity upon the nation's commerce and industries. Never- 
theless, the average dividend rate has increased until, 
according to the 1910 report of the Commission, it aver- 
aged 6.43 per cent., the next year 7 per cent. ; and accord- 
ing to the latest report is now 7.20 per cent. And the 
railway overlords and those who officially favor them 
now claim that a guaranty of this, or at any rate some 
fixed income, should become a settled policy of the Gov- 
ernment. 

As a further illustration of the view taken by rail- 
road managers the testimony of Vice-President Gardi- 
ner, of the Chicago and North Western, in his testimony 
taken at Chicago by the Interstate Commerce Commis- 
sion, in 1910, is interesting. His opinion coincides with 
that of the Commissioners thus far expressed, that the 
railroads should collect rates high enough to safeguard 
them against embarrassment and enable them to accumu- 
late surpluses in anticipation of all possible contingencies 
and periods of general depression, without reference to 
the nature or cause of its effect upon other interests. 
Speaking of the size of this surplus, he said : 

It should be large enough, however, as an insurance against 
the loss of crops for two or three years, or a calamity, or 
something of that sort. It would take a wise man to say even 
how much surplus the North Western should have. The di- 
rectors would be the only body I know of who could say that 
finally. 

98 



LAWS AFFECTING INTERSTATE CARRIERS 

It would be enlightening to know what Vice-Presi- 
dent Gardiner and others would say to a proposition com- 
ing from the merchants, farmers, and shippers generally 
of the Northwest that the balance of the people of the 
country should be compelled to pay them for what they 
have to sell, prices sufficiently above the competitive mar- 
ket price to enable them to carry their indebtedness, pay 
wages to their employees, profits equivalent to the divi- 
dends paid by the railroads, and still enough more for 
large bank balances to meet all reverses and misfortunes, 
including those resulting from bad management. And 
the company for which Mr. Gardiner spoke has carried 
out his theory in practice. In the past ten years not only 
has it paid out of its surplus, $56,000,000 as dividends 
on $85,000,000 of capital stock, but accumulated an un- 
appropriated surplus of $30,000,000, constituting in the 
aggregate a net return to its stockholders of more than 
10 per cent, per annum. 

It will be remembered that in 1910 there was a con- 
certed and preconcerted increase of rates, which was 
checked by timely action on the part of Congress author- 
izing the Commission to suspend the increase, and plac- 
ing on the carriers the burden of proof to show neces- 
sity for the increases. The figures for that year are a 
study by themselves and an object lesson of the limitless 
greed and rapacity of railroad managers when left with- 
out legal check or control. The total net operating rev- 
enues — that is, the profits of operation — were $938,121,- 
000, or an increase over 1909 of $110,306,000. One sig- 
nificant fact about the figures is that the gross revenues 
or collections for 1910 were $335,934,000 more than for 
the preceding year. For 1909 they were $2,443,312,000, 
and for 1910, $2,799,246,000. - At the same rate of in- 
crease they will soon reach and pass, if indeed they have 

99 



LAWS AFFECTING INTERSTATE CARRIERS 

not already reached and passed, the three-billion mark, 
while if the increase in net revenues is maintained, these 
will soon reach and exceed the billion mark. Another 
significant fact is that the increase of net, despite all 
that was then said about increased cost of operation, al- 
most exactly kept pace with the gross increase, being 
13^ per cent. It was a substantial increase not only of 
aggregates and per unit of service but per mile of rail- 
road. 

Here are the figures : 

Total Operating Operating Net in- 
average revenue expense come per 
mileage. per mile, per mile. mile. 

1909 233,002 $10,486 $6,933 $3,553 

1910 236,690 11,742 7,778 3,964 

The ordinary business man may, out of the profits of 
one year's business, buy an adjoining lot and enlarge his 
store or otherwise invest money to make it more conven- 
ient and attractive. He does not thereby acquire any 
claim, based on right, to increase the price of his goods, 
even if not prevented by competitive conditions. He en- 
larges his plant by investing more money. If he has the 
capital, so much the better. If he has it not, it may be 
expedient to, borrow it in order to meet the demands of 
a growing business. In the latter case he must pay in- 
terest. In either case he must take the risk and deter- 
mine at his peril whether the enlargement or addition will 
result in profit or loss. He never attempts to add the 
cost of enlargement or the interest on the indebtedness 
so increased to the price of what he has to sell, but looks 
to an increased volume of sales at the usual and normal 
profit. But the railroads object to any such view being 
taken of their business. Not content to await the growth 
of business and the rise of normal demand for the utili- 

100 



LAWS AFFECTING INTERSTATE CARRIERS 

zation of their improved facilities of transportation to 
restore their cash or meet their obHgations, they are con- 
stantly insisting upon increases in the price for the ser- 
vice which they furnish and increased profits. Nor is 
there anything in the present law to prevent or check 
this tendency and practice of the railroads, but its inevit- 
able effect will be to sanction, aid, and perpetuate it. 



lOI 



CHAPTER VI 

BANKING AND OTHER PECULIAR PHASES OF 
RAILROAD BUSINESS— FURTHER CRIT- 
ICISM OF THE VALUATION MEASURE 

There is an important phase of railroad finance which 
has thus far received very little public attention, but 
which is important in any thorough consideration of the 
subject. Notwithstanding that the railroad corporations 
have worked up their net revenues from operation to 
the billion-dollar mark, they are in receipt of additional 
large incomes from investments in what is really a bank- 
ing or money-lending business. This refers to the large 
holdings of some of the principal companies in the 
stocks and bonds of other companies. According to the 
latest report of the Commission on the subject, the aggre- 
gate of all issues of stocks and bonds is nineteen billions 
of dollars, of which about four and a half billions are 
duplications. Most of these duplications consist of 
"trusteed" stocks, upon which interest-bearing bonds 
have been issued, constituting two distinct capitalizations, 
the one concealed beneath the other, upon both of which 
profits, to wit, dividends on the stocks and interest on the 
bonds are received by the holding company. 

Railroads are chartered for the sole business of con- 
structing and operating lines of railroad and transport- 
ing freight and passengers; but their "earnings" from 
this business have grown so enormously through the 
operation of the Interstate Commerce Act, and under the 

102 



PECULIAR PHASES OF RAILROAD BUSINESS 

fostering care of the Commission, that the returns are far 
in excess of legitimate requirements in that business. 
Money has been accumulated in such vast sums that 
those in control have used the funds for what is in 
reality a banking business, with speculation as an ad- 
junct. The railroads now have five times as much of 
their working capital invested in bonds, stocks and other 
banking assets as they have invested in equipment, mate- 
rials and supplies for conducting the business of trans- 
portation. This condition calls strongly and unmistak- 
ably for legislation. It is one which cannot be permitted 
to continue. 

In 1906, this subject was looked into by the Commis- 
sion, and a balance sheet was compiled by its statistician 
from reports called for and received from individual 
companies. It showed that in cost of equipment and 
materials and supplies a working capital of $1,016,593,- 
864 was employed, but as banking assets, in the forms 
of stocks, bonds, cash, current assets, sinking funds, sun- 
dries or miscellaneous, the railroads owned and employed 
the vast aggregate of $5,022,576,615. Nor did the bal- 
ance sheet of 1906 include all the corporations in control 
of assets available to the railroads for banking and in- 
vestment purposes. There are several large holding com- 
panies not under the control of the Commission, because 
they operate no railroads but merely control finances 
and investments for the railroads. In the report of the 
Commission on Intercorporate Relationships of Railways 
it appears that the total par value of railway securities 
owned by the railroad corporations is $5,555,212,497. 

These vast community holdings form the basis of com- 
binations which defy the Commission, impede and ob- 
struct justice and oppose legislation. Need it be won- 
dered at that their opposition has been thus far so suc- 

103 



PECULIAR PHASES OF RAILROAD BUSINESS 

cessful? The people's representatives will never proper- 
ly or fully understand the railroad situation without con- 
sidering the relations between these vast holdings of each 
other's securities and several other matters, which are, 
so f^r as is possible, kept under cover by the interested 
parties. It would require a very large volume to fully 
exploit this one branch of the railroad question. But 
when the managers and their paid "educators" plead the 
necessity for raising rates to enable them to accumulate 
surpluses with which to construct branch lines, better- 
ments and terminal facilities, they might very properly be 
asked why these great accumulations of concrete wealth 
should not be used. But it should not be the policy of 
our Government to encourage further extensions by the 
present great railroad corporations to be controlled or 
owned by them. If the close alliance between the banks 
and railroads can be broken, so that there is no longer a 
money trust, if capital be made free again, there will 
then be others than the present railroad kings and finan- 
cial barons to construct, equip and operate independent 
lines of railroad. Exactly what is not needed is more 
subsidiaries or branches. As for increases in rates of 
interest, the combinations between large banking inter- 
ests, the communities of railroad interests created by the 
holding companies and the railroad corporations them- 
selves and interlocking directorates are almost exclusive- 
ly responsible for them. 

The prime mover and leader in nearly every effort to 
bring about an increase of rates in central and trunk- 
line territories, to make extensions and improvements, 
is the Baltimore and Ohio Railroad Company. Such 
being the case it is in order to give special attention to 
it, as an exemplification of railroad policy and railroad 
finance. 

104 



PECULIAR PHASES OF RAILROAD BUSINESS 

Here are two leading cities, New York and Chicago. 
When railroad construction first began, a line of railway 
was constructed over a natural route — along the lake 
shores by way of Niagara Falls, Buffalo and Albany — 
between them. Another line was constructed along a 
route almost or quite as judicious and economical by 
way of Pittsburg and Philadelphia. Contemporaneously, 
a third construction was undertaken and finally com- 
pleted over an indirect route to the Ohio River, and 
thence across a mountainous region by way of Wash- 
ington and Baltimore. The fraudulent financing of 
construction companies and stock bonuses to bondhold- 
ers may have been a feature of all these enterprises, so 
we will pass that all by. But the third of these enter- 
prises was ill-advised and unnecessary, except for local 
service. That is to say, for the Chicago-New York traf- 
fic and for the Chicago-Pittsburg and Chicago-Philadel- 
phia traffic it was not needed. Nevertheless its projec- 
tors persisted, and finally by stock and bond flotations 
and by inflations, by enormous expansions of credit, and 
by leasing other roads which would otherwise have been 
unprofitable, succeeded in establishing a zigzag line 
reaching from Chicago to New York. The question im- 
mediately arises, why should the people pay an exorbi- 
tant rate on traffic between Chicago and New York on 
all these lines, on the plea that such rate is necessary to 
insure a net profit to the stockholders in the roundabout 
road, but which is so exorbitant on the other two lines 
that it enables them not only to pay dividends to their 
stockholders, but to accumulate vast surpluses to be ex- 
pended in the construction of new lines and palatial 
terminals ? 

Along in the eighties the Baltimore and Ohio enterprise 
was treated to a series of experiments in rotten finance. 

105 



PECULIAR PHASES OF RAILROAD BUSINESS 

Every expenditure for buildings, rails, ties, rolling stock 
and betterments, instead of being charged against rev- 
enues as cost of maintenance, v^as entered in the surplus 
account. On that false showing a large issue of bonds 
was floated in England. Subsequently along about 1894, 
the English bondholders took it into their heads to in- 
quire into the surplus account and found that it con- 
sisted almost entirely of the items above-mentioned, and 
that none of the property they represented was visible in 
any useful form, except a few antiquated freight cars 
and engines. About that time the stock was zero and 
the bonds were not rated much better than the stock. 
And yet those bonds constitute to this day a part of the 
funded indebtedness upon which interest is being paid. 
Soon after the flush times set in subsequently to the war 
with Spain, an additional large issue of stocks was made 
in an attempt to secure terminal facilities in Philadel- 
phia and New York; and though the purposes were 
never accomplished, these issues are still outstanding 
and dividends are being paid on them. It ought to suf- 
fice to say, as may well be said, that on a question of 
railroad rates, this Government is under no obligation to 
make good the losses incurred by adventurers in railroad 
construction or to make safe and sound that which is in- 
herently speculative and unsound. As for the much- 
heard-of but seldom seen "innocent purchaser or inves- 
tor," he may be answered by referring to the power 
given to Congress by the Constitution, liable and likely 
to be fully exercised at any time since its adoption, to 
meet any conditions or exigencies that might arise. 

There is a fact to be here stated which should (though 
it probably will not) be profoundly considered. An evo- 
lution is taking place in railroad construction and equip- 
ment to supersede existing methods which will cause 

1 06 



PECULIAR PHASES OF RAILROAD BUSINESS 

grass to grow on thousands of miles of existing road- 
way, and relegate a vast amount of steam power and 
rolling stock now in use to the junk heap. This state- 
ment has special reference to the recent invention of the 
triangular electric monorailroad. After many futile 
attempts to provide a super-structure of sufficient 
strength and stability to withstand the oscillation of cars 
propelled on a single rail, the difficulty is overcome in 
this invention. Long lines can be constructed and 
equipped on this plan for five thousand dollars per mile, 
and operated at great speed, with absolute safety. The 
trains will go easily over steep grades and sharp curves. 
The indifference of large shippers with reference to 
increases of rates by changes of classification is remark- 
able. This remark is especially applicable to the big 
eastern shipper. His goods are sold "free on board," 
and he has no interest in the movement and but little in 
the rates. He leaves the classification exclusively to the 
railroads as a matter of no personal concern, and with- 
out even noting the changes through which the carriers 
gradually and almost imperceptibly work up the rates 
until they are actually unjust and unreasonable, without 
anybody being able to prove it otherwise than by com- 
paring them with the rates made years ago, the burden 
being shifted to the West and South. But though we 
may be unable to trace out and describe the minute steps 
and processes by which rates have been increased, or 
the dates and methods, except in particular instances of 
litigation before the Commission, yet we are able to dem- 
onstrate from general statistics that there has been a 
general increase in the cost of transportation. The ag- 
gregates of increased earnings and profits are no doubt 
due in part to increased volume of business, but that 
falls short of accounting for all of it. If all or nearly 

107 



PECULIAR PHASES OF RAILROAD BUSINESS 

all of it were assignable to that cause it would involve 
the assumption that there had been an abnormal increase 
in railroad traffic during the last decade, an increase out 
of due proportion to that shown in the preceding decade, 
and we know that there was no such disproportion. 
Nor can it be, except in some small part, attributed to 
the increased capacity and effectiveness of railroad 
mechanism, because locomotives and cars had almost 
reached their maximum capacity and road beds had 
already been placed in good condition ten years ago. 
Whether attributable, however, to increased rates or not, 
this increased and constantly increasing profitableness of 
railroad operation has its origin in the rates paid by 
shippers, rates which should be reduced, especially in 
view of the fact that net earnings have reached a glaring 
disproportion to the average returns to persons engaged 
in other occupations. 

The question of transportation finance is scarcely 
less important nationally than that of government 
finance. The establishment by legislation of an incor- 
rect principle or policy for dealing with the railroads 
may be as fatal to public welfare as would be a vital 
change in our form of government. It is much to be 
deplored that we cannot fully understand the effects 
of a new economic power until it has grown to gigan- 
tic proportions, and not even then except by long and 
painful experience. With respect to the railroad sys- 
tem, policy and practices, we are now far into, but 
not near the end of, the educational and experimental 
stage. We are now in that stage of mental unpre- 
paredness where we are liable to make huge mistakes, 
to be much regretted afterwards. To allow the Valua- 
tion Act and other laws to stand in their present forms 
will be such a mistake. We have already endured 

iq8 



PECULIAR PHASES OF RAILROAD BUSINESS 

many of the evils of our almost fatal optimism on this 
subject. We could not believe that the predicted and 
threatened abuses of power that we recklessly surren- 
dered to the railroads would occur until after they had 
occurred in an aggravated form. We feared at first 
that they would displace labor and in various ways dis- 
turb our peace, but we could not foresee that they 
would turn the advantages we gave them to the com- 
plete domination of all other kind of business. 

It should not be overlooked that more than half of 
the $8,000,000,000 going into railroad property as the 
basis for the huge capitalization consisted in profits 
on profits. That is to say, large surpluses collected 
from rate payers were used in betterments, extensions, 
and other improvements, and then more money was 
obtained from money lenders on these as additional 
security. Bonds were issued to them and a further 
drain on the pockets of rate-payers thus instituted to 
keep down the interest as fixed charges. So the peo- 
ple were taxed in the first instance to pay for the im- 
provements, and the same people are now being taxed 
to pay interest on investments in what might be equit- 
ably considered the proceeds from, or profits upon, 
their own investments. Legally, of course, all these 
new constructions belong to the railroads, in addition 
to being a basis for the interest charges, and also ope- 
rated to earn dividends for the stockholders. If any 
man could obtain nineteen billion half-dollars, hand 
them over to the Federal Government, and the Gov- 
ernment should hand over in return its perpetual obli- 
gations to pay nineteen billion 100-cent dollars, bear- 
ing interest at 7 per cent., that would be a fair illustra- 
tion of what is contemplated in the constant-profit 
scheme of rate regulation. The man who received and 

109 



PECULIAR PHASES OF RAILROAD BUSINESS 

held these obHgations would bankrupt the nation in thirty- 
years. And that is what the railroads will do if we 
do not right-about face in our views of duty to the peo- 
ple in this matter. We must not permit ourselves to be 
won over or misled as to the meaning of this self-serv- 
ing doctrine which seems to have found acceptance 
by the Interstate Commerce Commission. The rate 
of interest here specified, waiving the point that part of 
the investment was of surplus and not original, is real- 
ly more than 14 per cent., or nearly five times the rate 
at which the Government can refund its bonds. What 
would be thought of us if we authorized, and the ex- 
ecutive department sanctioned and carried out, such a 
funding scheme with some powerful syndicate en- 
joying a monopoly of favor, just as the railroads enjoy 
their power in the absence of legal control? 

The impossibility of dealing with rate increases and 
inequalities in detail, or with any such purpose as that 
of reducing or equalizing them or more equitably dis- 
tributing them among the 8,000 and more commodi- 
ties, and between the many thousand of shipping 
points, without conferring additional powers upon the 
Commission must be so clear as to require no elucida- 
tion. The equalization, adjustment, and distribution 
of the increases and changes of rates is being con- 
stantly referred to as a science by itself, and one of 
great difficulty. All writers on the railroad question 
emphasize the delicacy of the existing rate adjustment 
and strive to show why the change of a single rate be- 
tween any two important points necessitates thou- 
sands of changes so as to prevent widespread market 
disturbances, notwithstanding that the carriers have 
never hesitated to make many rate changes arbitrarily 
and by sweeping decrees of councils of traffic mana- 

IIO 



PECULIAR PHASES OF RAILROAD BUSINESS 

gers without reference to any rule or scientific basis 
or knowledge of or regard for the effect of such 
changes upon producing, shipping, and trading inter- 
ests. How can the Commission ever reach the ends 
of justice in all these matters without the possession 
of the broadest and most searching powers? 

The fact had better be given recognition now than 
later, that any effective Government regulation of rail- 
roads partakes of the imperialistic, but should never 
be allowed to become paternalistic. The right to regu- 
late grows out of the interstate commerce clause of 
the Constitution and the close connection between in- 
terstate carriers and interstate commerce itself, and 
the regulation itself is the exercise of a power which 
is to some extent arbitrary. But this attitude toward 
the carriers should never be held to impose upon the 
Government an obligation to safeguard the interests of 
that particular class of persons and corporations en- 
gaged in transportation any more than if they were en- 
gaged in any other line of business — any more than 
where the law of the land is enforced against the pri- 
vate citizen. All business is subject and subjected to 
legal restrictions, regulations, and penal provisions. 
And in addition to the many laws which encompass the 
ordinary business man, he is always in contact with 
the law of competition, from which the railroads find 
ways to exempt themselves. Any Government going 
into the insurance business and guaranteeing constant 
profits in all lines of business would be proclaimed a 
failure and disappointment, and by none more prompt- 
ly than by the prudent and conservative business men, 
the manufacturers, merchants, miners and farmers of 
the country. 

Much has been said about a claim of great and pros- 

III 



PECULIAR PHASES OF RAILROAD BUSINESS 

perous lines to enjoy, in form of greater profits, the 
rewards of superior engineering foresight and mana- 
gerial ability. It is said that such a great institution 
should be conceded an organization value in the es- 
tablishment of rates. Those who make that claim 
will regard as presumptuous any attempt to answer 
it, appealing as it does to our natural inclination to ap- 
plaud those who have achieved success in any pursuit 
or line of activity. But that the claim is superficial 
and utterly destitute of merit is not difficult to demon- 
strate. In the first place, it entirely ignores the dis- 
tinction between private and public service. It must 
be borne in mind that recognition for this claim is pre- 
sented at the bar of the legislative body of the na- 
tion and consideration is asked for it on every occasion 
of legislation being proposed to curb the powers of 
railroad monopolies. It is therefore to be treated as a 
claim preferred for recognition at the hands of the 
general public, and as such it should be examined and 
treated. 

It has not been unusual for men to devote su- 
perior talent and industry to the public on the same 
terms and subject to the same sovereign powers as 
they devote talent and industry of mediocre and in- 
ferior quality, or as one devotes more and another less 
of capital. In the second place, it is impossible to find 
any deserving recipient of any reward that it might, 
upon this new theory, be proper to bestow. No man 
living, nor the descendants of any that have died, are 
entitled to compensation in any form for projecting, 
for instance, the New York Central as it was pro- 
jected. In addition to the fact that the original pro- 
moters and builders quickly pocketed great fortunes 
by manipulating the stocks and bonds, and not by 

112 



PECULIAR PHASES OF RAILROAD BUSINESS 

superior public service, is the fact that they enjoyed 
the favor and aid of State and municipal authorities 
without v^hich their enterprise and foresight would 
have availed them nothing. In the third place, speak- 
ing now with reference to the present active mana- 
gers, there is no basis for any claim of superior man- 
agement- But assuming that the management is ex- 
cellent, it is a safe assumption that all in a super- 
visorial capacity are in the enjoyment of adequate sal- 
aries. Then we have the corporation itself, the non- 
sentient figment of the imagination which need not 
be considered aside from its stockholders. And as to 
the latter, the question of why their dividends should 
be rendered constant and secure by action taken by 
the Government has not been answered and will re- 
main unanswered. Finally, as for the claim of the 
New York Central and other such companies based 
on superior management, it does not appear that a 
well constructed, highly improved, and thoroughly 
equiped railroad is any more difficult to manage, or 
even as difficult, as one of a different kind. Of all me- 
chanical appliances that used in the transportation of 
persons and property from place to place is the 
simplest, involving a comparatively low degree of me- 
chanical skill. 

Of course, a railroad system is complicated in its 
entirety, as would be a great department store, but the 
task assigned to each man is simple. Again, trans- 
portation considered apart from its instrumentalities is 
too important a function to come under the absolute 
unsupervised control of any person or persons, either 
in an individual or privately organized capacity. It is 
to modern life what chemical forces, gravitation, and 
motion are to the earth. It is the one thing that makes 

"3 



PECULIAR PHASES OF RAILROAD BUSINESS 

production worth while and exchange possible, as the 
recurrence of the seasons causes vegetation to grow 
and the fruits of the field to multiply. Therefore, 
these great conquests of the wilderness, these great 
advances of civilization, for which so much credit is 
claimed for individuals and corporations, were the 
mere applications of forces which belong to the whole 
people. Those in control temporarily of these power- 
ful instrumentalities are the mere accidents of a day. 
Their achievements were not attributable so much to 
their superior business sagacity as to popular toler- 
ance, credulity, and optimism. 

The railroads are now claiming that rates should be 
maintained or increased so as to produce surpluses be- 
yond a fair return on existing capitalizations in order 
to sustain the credit of the railroads. In other words, 
they expect Congress, the President, the Interstate 
Commerce Commission, and everybody having any- 
thing to do with regulation to depart from all funda- 
mental principles governing railroad rates and set up 
a new rule, a rule which, while leaving the control of 
stock and bond issues, as well as the financial and ope- 
rating control, exclusively in private hands, would 
impose the duty first upon Congress and then upon the 
Commission, and ultimately upon the people to insure 
a market price for stocks and bonds such as will fa- 
cilitate the borrowing of money and steady the mar- 
ket for stocks and bonds. To all familiar with the sub- 
ject, to all who have in mind the public inteerst, the 
proposition is absurd and preposterous on its face. 
It would impose a task which, even if supportable on 
any just principle, would be impossible to perform, 
even though all the constitutional powers of the Gov- 
ernment were fully exerted. 

114 



PECULIAR PHASES OF RAILROAD BUSINESS 

The doctrine of an assured constant profit to un- 
wisely projected or badly managed roads was touched 
upon at the hearing in the rate-advance cases in 1910, 
but the discussion was quickly dropped and did not 
receive any further serious consideration. One of 
the vice-presidents of the Chicago and Northwestern 
answering a query of one of the commissioners, said : 

I admit that what might be justice to some lesser line would 
extravagantly increase us, if you please, but I have not the wis- 
dom to say how that thing shall be disposed of. 

The people's representatives in Congress and other 
legislative bodies had been then for a long time insist- 
ing upon a reduction of rates and had freely expressed 
themselves to the effect that substantial reductions 
should be made. And there are ample reasons for 
saying that few railroad officials entered upon that 
scheme of wholesale advances with the expectation 
that the commission would dare establish the advanced 
rates as just and reasonable. The purpose of the rail- 
roads in taking the action taken by them was, no 
doubt, to make a demand such as the people are now 
making for a decrease of rates — a demand which was 
then and is still being urged — appear preposterous and 
unreasonable. It will be strange if the millions of rate 
payers in the country allow their just demand for a 
reduction to be thwarted by such tactics. Of course 
the heads of some of the weaker roads, those which 
pretend to be having a hard struggle at best, think 
that any general reduction of rates would be very 
harsh and unjust to them, notwitstanding that the 
maintenance of present rates would unduly enrich the 
stronger companies, and of course the latter are ever 
ready to grasp whatever may come within their reach. 
So that the question finally resolves itself into one 

115 



PECULIAR PHASES OF RAILROAD BUSINESS 

of sacrificing general interests to temporarily sustain- 
ing and keeping afloat these weak but ambitious enter- 
prises which might otherwise have to liquidate and 
reorganize on a narrower financial basis. 

The rate issue thus shifts and the contest comes on 
between the people and the great dominating railroad 
systems. We are constantly invited to consider, not 
what is good business policy for the public, but to be 
profoundly impressed with the promotion of the finan- 
cial prosperity of private corporations Jiaving ex- 
tensive control of general business interests. 

Of course — 

Said Mr. McCrea, President of the Pennsylvania, at 
the rate increase investigation on October 12, 1910 — 

it would be possible to get money by raising the interest on bonds 
to a substantially higher level. 

But he did not think such a course would be good 
finance. His alternative was to increase the price of 
what his company has to sell. To do that is not a 
difficult task for monopolies of its class, in the ab- 
sence of objections by the Commission. But men in 
other business, contemplating new acquisitions for 
enlargement of plant or extension of operations, must 
obtain the needed funds as best they can and at the 
prevailing rates of interest. Moreover, they must find 
the security for their financial accommodations. But 
these transportation monopolies, now that the trick of 
concealing surpluses expended Under various heads, 
practiced by them hitherto, is exposed and generally 
understood, are urging the need for further railroad 
extensions and facilities, and backing up their demand 
for high rates with an implied threat that if they be 
not allowed a free hand in continued and more dras- 

ii6 



PECULIAR PHASES OF RAILROAD BUSINESS 

tic exploitation of the nation's freight-payers the ex- 
tensions and facilities will not be provided and that 
the quality of service v^rhich they give their patrons 
will depreciate. What they really have in reserve is 
the acquisition of more and more of the weaker lines, 
further consolidations, and more impregnable mo- 
nopolies. Any pretense that they intend to stand still 
is the baldest assumption, and any fear that they may 
or can create a commercial or financial collapse is 
groundless. The statement that there has been any 
advance in the cost of borrowed money except when 
borrowed by commercial and industrial interests is 
incredible in view of the fact that nearly all the bonded 
indebtedness of the New York Central, funded only a 
few years ago, bears interest at only 3^ per cent, and 
that of the Pennsylvania at even a lower rate. What 
the railroad presidents say on the subject is, to take 
a charitable view of it, mere speculation. They make 
no pretense of ever having even an unpleasant ex- 
perience in testing the money market. In fact, the 
financial conditions of all the controlling railroads are 
such that no test of their ability to borrow money at 
the lowest rates of interest has been necessary. 

In resisting measures looking to effective regula- 
tion of their rates and services, the railroads are invit- 
ing something even more drastic and far-reaching. 
The high-handed attempt made three years ago to ar- 
bitrarily and generally increase their rates aroused 
the country to a high pitch of indignation and moved 
Congress to place what proved for that occasion an in- 
superable obstacle in the way in the form of the bur- 
den-of-proof provision. The action thus taken by Con- 
gress, the general and widespread discussion which 
ensued, and the final action adverse to the railroad^ 

117 



PECULIAR PHASES OF RAILROAD BUSINESS 

taken by the commission served to focus public atten- 
tion upon railroad management and finance as never 
before. The whole period was educational. 

The people will claim the full measure of justice at 
the hands of Congress, and in the end will find ways to 
obtain it. The country is rapidly filling up, population 
is greater and more homogeneous, and the proportion 
of articles for use and consumption not produced on 
the spot but requiring to be transported, is increasing 
year by year. In other words, and in railroad par- 
lance, the traffic is becoming denser, and all these are 
pointing to the necessity for lower rates. That neces- 
sity will not regard with favor any law not having for 
its primary object the common interest. 

Attention will now be called to certain phraseology 
of the Railroad Valuation Act passed at the Sixty-sec- 
ond Congress. The investigation which the Commis- 
sion is to undertake covers so many important subjects 
and so many conditions which are constantly chang- 
ing that it can never be concluded. The bill limits the 
Commission to no standard or definite rule of proced- 
ure and confers the widest range of authority. Among 
other matters, it is authorized to "investigate, ascer- 
tain and report the value of all the property owned or 
used by every common carrier subject to the provis- 
ions of this (interstate commerce) Act. To enable 
the Commission to make such investigation and re- 
port it is authorized to employ such experts and other 
assistants as may be necessary. The Commission may 
appoint examiners who shall have power to administer 
oaths, examine witnesses, and take testimony. The 
Commission shall make an inventory which shall list 
the property of every common carrier subject to the 
provisions of this Act in detail, and show the value 

ii8 



PECULIAR PHASES OF RAILROAD BUSINESS 

thereof as hereinafter provided, and shall classify the 
physical property, as nearly as practicable, in con- 
formity with the classification of expenditures for road 
and equipment, as prescribed by the Interstate Com- 
merce Commission." 

It will be observed that the Commission is given no 
express authority to appraise such abstract properties 
as franchises, good-will, etc.; but by specifying 
"physical property" and requiring that it be classified 
and appraised separately, there is a clear implication 
of other than physical property. 

There is a provision near the end of the Act read- 
ing as follows : 

If, upon the trial of any action involving a final value fixed 
by the Commission, evidence shall be introduced regarding such 
value which is found by the court to be different from that 
offered upon the hearing before the Commission, or additional 
thereto and substantially affecting said value, the court, before 
proceeding to render judgment shall transmit a copy of such 
evidence to the Commission, and shall stay further proceedings 
in said action for such time as the court shall determine from 
the date of such transmission. Upon the recipt of such evidence 
the Commission shall consider the same and may fix a final value 
different from the one fixed in the first instance, and may alter, 
modify, amend or rescind any order which it has made involving 
said final value, and shall report its action thereon to said court 
within the time fixed by the court. 

This enables the carrier in any rate case brought for 
a review of the action of the Commission to raise the 
question of franchise valuation, and, by the express 
language of the provision, it would be the duty of the 
Commission to receive, consider and give effect to the 
evidence which the carrier might offer. By the part 
first quoted above, it is made the duty of the Commis- 
sion to value "all the property owned or used." It 
must not only value all the property but classify the 
physical property. 

119 



PECULIAR PHASES OF RAILROAD BUSINESS 

The Commissioners do not, however, have the last 
say on. the question of whether such elements as fran- 
chises, good-will, etc., shall have a value placed upon 
them as property, even if they felt at liberty to con- 
strue the act as excluding them. A way is provided 
by the last quotation above for the carrier to bring 
that question before the courts in any litigated action, 
in case the Commission should prove intractable. 

We have already seen that the Supreme Court ac- 
cepts corporate franchises as property to be valued in 
finding a basis for making rates. The appended bill 
expressly excludes good-will and franchises as ele- 
ments of value. 

But we have only just now reached the joker in the 
act. The far-reaching effect of particular words or 
phraseology in an act of legislation governing a subject 
so broad as interstate commerce has already been 
commented on. When the railroad representatives 
cheerfully participate and promptly acquiesce in the 
work of the Senate Committee, as in this case, and 
then the resulting bill passes without opposition, the 
search for a joker should begin at once. A provision 
coming after all those authorizing the Commission, 
prescribing its duties and procedure, reads as follows : 

All final valuations by the Commission and the classification 
thereof shall be published and shall be prima facie evidence of 
the value of the property in all proceedings under the Act to 
regulate commerce as of the date of the fixing thereof, and in 
all judicial proceedings for the enforcement of the Act approved 
February fourth, eighteen hundred and eighty-seven, commonly 
known as "the Act to regulate commerce," and the various acts 
amendatory thereof, and in all judicial proceedings brought 
to enjoin, set aside, annul, or suspend, in whole or in part, any 
order of the Interstate Commerce Commission. 

That looks very regular. Indeed, it makes a rather 
pleasant first impression. But hold a moment. The 

120 



PECULIAR PHASES OF RAILROAD BUSINESS 

courts have heretofore refused to disturb decisions of 
the Commission founded on fact. They have refused 
to examine into any question raised by the carriers 
upon resort to the courts other than questions of law. 
So long as the Commission kept within its jurisdiction 
and conformed to the law of its being, the courts 
would not disturb any conclusion reached by it. That 
made its decisions on such questions as that of a prop- 
erty valuation conclusive ; not merely prima facie. 
What is the valuation to be made by the Commission 
for but to be used as a parcel of evidence in the ascer- 
tainment of a rate or rates? 

This then opens the way for review by the courts 
on the valuation phase of every case decided by the 
Commission which upon any pretext the railroads can 
carry into the courts. To say that the Commission's 
valuation shall be prima facie evidence was just as 
much worse than to have said nothing at all as to have 
said that no person owning more than ten thousand 
shares of the stock of any railroad company subject 
to the Interstate Commerce Act shall be eligible to 
appointment as an Interstate Commerce Commis- 
sioner, the law now disqualifying the owner of any 
such stock. 

The Act allows any carrier to have a rehearing upon 
a tentative valuation before the valuation is made final. 
Why not have stopped there? Why not have let the 
law remain as the Supreme Court had established it, 
so that, when the Commission had settled its final val- 
uation after hearings and rehearings, the review in the 
courts would have been limited as now to questions of 
jurisdiction, or, as otherwise expressed, whether the 
Commission had, in its proceedings, confined itself 

121 



PECULIAR PHASES OF RAILROAD BUSINESS 

within the bounds of authority prescribed in the stat- 
ute? 

Without going into a detailed discussion of the au- 
thorities, an extract is here given from the opinion of 
the Supreme Court in the leading case (Interstate 
Commerce Commission v. Illinois Central Railroad 
Co., 215 U. S., 470-471): 

''Beyond controversy in determining whether an order 
of the Commission shall be suspended or set aside, we 
must consider (a) all relevant questions of constitutional 
power or right; (b) all pertinent questions as to 
whether the administrative order is within the scope 
of the delegated authority under which it purports to 
have been made; and (c), a proposition which we 
state independently, although in its essence it may 
be contained in the previous one, viz., whether, even 
although the order be in form within the delegated 
power, nevertheless it must be treated as not embraced 
therein, because the exertion of authority which is 
questioned has been manifested in such an unreasona- 
ble manner as to cause it, in truth, to be within the ele- 
mentary rule that the substance, and not the shadow, 
determines the validity of the exercise of the power. 
:H 5jt * * * Power to make the order and not the 
mere expediency of having it made, is the question." 

The insertion of that provision was just as mischiev- 
ous as the action of the Commerce Court in the Proc- 
tor and Gamble case, assuming jurisdiction to review 
negative orders of the Commission, criticized and re- 
versed by the Supreme Court, (Proctor and Gamble 
Co. V. United States et al, 224 U. S.), because leading 
to such confusion and obstruction as to destroy the 
usefulness of the Commission. 

To say in this matter that the valuation shall have 

122 



PECULIAR PHASES OF RAILROAD BUSINESS 

the force of prima facie evidence of value is merely to 
say that in every rate case that the carriers can get 
before the courts, the decision of the Commission may 
be attacked, and the whole subject retried de novo. 
To make a thing prima facie evidence before the Com- 
mission means one thing; to make it prima facie evi- 
dence before the courts means something very dif- 
ferent. 

This provision utterly destroys the value of the bur- 
den-of-proof provision, the importance and value of 
which has been already shown and is well understood 
by shippers and freight-payers generally, and especially 
by those of the legal profession having cases before the 
Commission and courts. The burden-of-proof provision 
established a rule for the Commission in the investi- 
gation of a fact, or, to be strictly accurate, of mixed 
fact and law. Under its operation and in the absence 
of the provision last quoted in the Valuation Act, the 
Commission could have used its valuation to refute the 
evidence of valuation produced by the carriers at a hear- 
ing before them. But the burden of proving the valua- 
tion rested on the latter throughout. And the decision by 
the Commission on that question was final, that is to say, 
it could not be opened and reviewed by the courts. 
Now, however, and because of this prima facie evi- 
dence provision, applicable to the courts, the right to 
reopen that question is expressly conferred upon the 
carrier when he carries his case to court. 

The railroads have been scheming for a way to get 
rid of or to nullify the burden-of-proof provision ever 
since it was passed. Unawares to the freight-payers 
of the nation, with the connivance of the Commis- 
sion, Congress co-operating, they appear to have found 
it and had it incorporated in the law. Of course, the 

123 



PECULIAR PHASES OF RAILROAD BUSINESS 

carriers could always prove that a rate or a schedule 
of rates as fixed by the Commission was confisca- 
tory, and, as part of that plea, show the value of their 
properties devoted to the public use ; but that raised a 
constitutional question, in the trial of which, by the 
burden-of-proof provision they had the burden through- 
out. But under this prima facie evidence provision, they 
can also reopen the question of valuation in the courts 
on a question of the reasonableness or unreasonableness 
of a rate or of rates, notwithstanding that the Commis- 
sioners may have given effect to the burden-of-proof 
provision at the hearing of the same case before them- 
selves. 

Plainly stated, the carriers may now, in all cases, re- 
open in the courts the question of valuation with like 
effect as if the case had never been before the Com- 
mission. The effect of the enactment of the prima 
facie provision was to give the railroads an immeas- 
urable and inestimable advantage which they did not 
possess before, and to render the whole scheme of regu- 
lation abortive and ridiculous. 

What is here quoted is but a fraction of all that the 
bill authorizes the Commission to do at public ex- 
pense, much the larger proportion of it being not only 
entirely futile and worthless if done, but impossible 
of being done at all. In the midst of many authoriza- 
tions is the ascertainment of the value of each piece of 
property to the present owner and in each instance 
the elements forming the basis of the estimate of 
value. One of the meanings extracted from all the 
verbiage used is that a valuation shall be placed 
upon railroad property as such. To value the right 
of way of the Pennsylvania through the gaps and nar- 
row valleys of the Alleghenies and of the New York 

124 



PECULIAR PHASES OF RAILROAD BUSINESS 

Central along the Hudson or of their terminal facili- 
ties in New York City for railroad purposes is to place 
valuations upon properties which are essentially and 
unqualifiedly monopolistic. The task would be vain 
even if possible. It would be like attempting to value 
the taxing and governing powers of a State or city. 
The act contains not even an intimation of what the 
Commission shall do with its valuation and report 
when completed. The Commission would be, accord- 
ing to its own oft-repeated declarations, at a loss as to 
the use to make of it. Without quoting from the hear- 
ings before the committees of Congress, attention may 
be properly called to the fact that the Commissioners 
appearing and making statements were vague and non- 
committal as to any uses that might be made of their 
valuation, notwithstanding their willingness to un- 
dertake the labor, with its incidental expenditure of 
millions of dollars. 

It is impracticable to criticise all the provisions of 
the act in detail, but the objection to making the in- 
vestment a standard may be briefly noticed. 

Some railroads were started with very small origi- 
nal investments of private capital. For instance, the 
Union Pacific and Central Pacific, now a continuous 
line from Council Bluffs to San Francisco, were start- 
ed with enormous land grants and Government guar- 
anties, out of which the roads were built and equip- 
ped, leaving to the stockholders the stocks and to the 
corporations extensive areas of l^nd which cost them 
nothing. The Union Pacific was subsequently bank- 
rupted to construct the Oregon Short Line and other 
unprofitable branches, and the Central Pacific was 
brought to the verge of insolvency by a diversion of 
business to the Southern Pacific. After that the reve- 

125 



PECULIAR PHASES OF RAILROAD BUSINESS 

nues of the Union Pacific and Central Pacific became 
very large. Enormous sums were taken from earn- 
ings and invested in betterments, additions and branch 
lines, still leaving a great annual surplus for dividends. 
Now, take the Santa Fe, a competing line: It repre- 
sents a very large percentage of original investment, 
but a great deal less money has been used in its con- 
struction per average mile than in the cases of the 
Union Pacific and Central Pacific, notwithstanding 
that it is just as efficient and necessary. Now, suppose 
you take investment as a standard, without distin- 
guishing between original investment and investment 
out of income. First you would authorize the Union 
Pacific and Central Pacific lines to fix much higher 
rates from Missouri River points to the Pacific than 
those fixed by the Santa Fe. To say nothing of its 
primary injustice, that would at once divert the great 
bulk of traffic to the Santa Fe and defeat the very 
purpose of giving the Union Pacific and Central Pacific 
lines the higher rate. 

But many roads other than the Union Pacific have 
been built up almost entirely out of earnings. For in- 
stance, the original investment in the Erie was much 
less than in the Pennsylvania, and yet the ultimate 
cost of the Erie was double per average mile that of 
either the Pennsylvania or the New York Central, ow- 
ing to engineering difficulties. The inherent injustice 
of allowing rates to pay income on reinvestments of 
earnings is shown by Commissioner Lane's report in 
the recent rate-increase cases and illustrated by the 
result, if the theory were applied to the Burlington. 
(See p. 28 et seq. of Commissioners' report in rate-ad- 
vance cases.) 

There are also very serious objections to making a 

126 



PECULIAR PHASES OF RAILROAD BUSINESS 

separate valuation of each corporate property a rigid 
basis of rates. There would result non-permissible in- 
equalities. But that objection would be to a great ex- 
tent obviated by making valuations in the aggregate 
of whole systems, as is provided for in the appended 
bill. If you value the thousands of miles of the Penn- 
sylvania system and the thousands of miles of the New 
York Central system you will not find a material dif- 
ference per average mile. The deduction for obsoles- 
cence and depreciation will constitute an enormous 
subtraction from cost in many instances. The Penn- 
sylvania will, under this plan, have its New York City 
and West Philadelphia improvements valued, but 
much of their total will be subtracted from cost of 
Jersey City and Broad Street terminals. But in each 
of the exceptional values it is to be spread over thou- 
sands of miles. And this plan will directly regulate 
these dominating lines and thus indirectly regulate the 
secondary or dependent lines. 

The whole mass of existing legislation, although 
much of it was well directed and intended, has proven 
ineffective to prevent an enormous increase of aggre- 
gate cost of transportation, dangerous massing and 
concentration of wealth with attendant general dis- 
tress and enormous and startling inflation of corporate 
securities, the dividend and interest charges on which 
constitute an ever-increasing burden and drain from 
all business and all industry. 

The present law amounts to just this : The carriers 
shall deal fairly by the public, and when a question of 
fairness or unfairness is raised the Commission shall 
sit as an arbitration board with full powers in the 
premises. The reports in the rate-increase cases fully 
support this view. From these reports it clearly ap- 

127 



PECULIAR PHASES OF RAILROAD BUSINESS 

pears that the value of property devoted to the public 
use, even if any satisfactory proof of it had been made, 
would have constituted only one of the many import- 
ant elements in the case. And it is justly inferable 
from the language of the Commissioners, that if the 
railroads had made strong showings as to revenue re- 
quirements, many of the proposed increases would 
have been allowed. Be that as it may, it is a fact, one 
which should arouse serious concern, that the rail- 
roads are now engaged in the preparation of a valua- 
tion of their properties to be used in making up a case 
upon which the Commission cannot reasonably prevent 
further increases in their rates. So the issue before the 
Commission between the carriers and the public has 
been within three years converted from one raised by 
shippers demanding a reduction of rates to one now 
raised by the railroads for an increase. 

Transportation rates, both for freight and passengers, 
are too high in this country, and if the people had 
their way, they would materially reduce them. Meas- 
ures of public justice are often harsh. And if rates 
were properly reduced on the great dominating rail- 
ways, that would without any further legislative act 
whatever force several important and many unim- 
portant railroad companies into receiverships and re- 
organizations. And yet, sooner or later, Congress 
must assert its constitutional powers. 

Why do newspapers, lawmakers and Interstate 
Commerce Commissioners discuss this as they would 
a humanitarian question? The corporations are arti- 
ficial, nonsentient. The officers and agents are pre- 
sumably interested only to the extent of their salaries, 
which are not to be affected by any reduction proposed 
by any one. The stockholders are but a small per- 

J28 



PECULIAR PHASES OF RAILROAD BUSINESS 

centage of the entire population, having no better 
right to obstruct measures in the public interest than 
have the smallest beneficiaries of exorbitant taxation. 

While the Commission now has unlimited discretion 
in determining the reasonable rate and in allowing a 
just and reasonable or in disallowing an increased 
rate, it has no power to increase a rate. Lacking this, 
it cannot take up a schedule of rates in which inequali- 
ties and discriminations exist and adjust and equalize 
them. If, to illustrate, the Commission could increase 
the rates on sugar and coal going west, that would 
permit of a material reduction on many other com- 
modities without or with only moderate diminution of 
revenues. This would also diminish the power of the 
sugar trust and coal trust to injure western interests. 
The Commission should be given the power to revise 
and readjust whole schedules. In other words, it 
should be given real rate-making power. Along with 
this increase should come a numerical increase in the 
membership of the Commission and its division into 
departments. 

In order to get rid of all the evils of industrial mo- 
nopoly an amendment of the Federal Constitution 
would be necessary. That is undoubtedly true, if it is 
to be done by legislation which it would be practicable 
to enforce, aimed directly against the corporations 
holding the monopolies. But to vest a Government 
Commission with complete control of railroad rates 
would open the door to an effective simple remedy 
for trust extortion as well as for exorbitant freights 
and fares. Suppose, instead of a license law, a meas- 
ure the inconvenience and expense of the enforcement 
of which render it hardly worth considering, the In- 
terstate Commerce Commission with full power over 

129 



PECULIAR PHASES OF RAILROAD BUSINESS 

rates, whether under government or private owner- 
ship, were authorized, in case it were found that any 
corporation or combination of corporations had ac- 
quired a monopoly in any article of interstate com- 
merce, to discriminate against it in rates, and require 
it to pay a higher rate than those paid by others en- 
gaged in producing the same article. This may ap- 
pear upon first impression to be a harsh remedy, but 
it is no harsher than the license tax which is proposed, 
nor the fine which may be imposed under the Sher- 
man Anti-Trust Act for one form of monopoly. That 
such power to discriminate could be constitutionally 
conferred and exercised there would seem to be no 
room to doubt. All forms of license are discrimina- 
tions; so are import duties on some articles while 
others are admitted free or at a lower rate. So are all 
the remedial provisions of the anti-trust act a dis- 
crimination between monopolies resulting from re- 
strictive agreements and monopolies which result 
from mere consolidation of capital. There are many 
wide discrepancies between the mail facilities furnished 
by the post-office department to various sections and 
communities, and yet the power of the Government to 
thus discriminate has never been questioned. 



130 



CHAPTER VII 

REGULATION OF RESTRAINTS AND MO- 
NOPOLIES.— General Principles. 

There are enough reports of monopoly abuses and 
comments thereon in the newspapers every day to 
make a large volume if collected, but seldom are seen 
any direct attacks upon the principle of monopoly. 
There are likewise floods of ridicule for the compara- 
tively few who point out the evils inflicted by mo- 
nopoly, but no attempt to refute their allegations or to 
answer their arguments. There are also scores of 
politicians playing the role of statesmen who are too 
selfish or ignorant to take the essential steps to rid 
the country of these destroyers of financial independ- 
ence and of the individuality of the citizen, so neces- 
sary to insure the perpetuity of the republic. 

In the conduct of the Government during recent 
years, there have been investigations without end. 
There have been investigations by special commissions 
appointed by Congress to acquire information about 
industrial conditions which every member of Con- 
gress and Senator ought to have been familiar with 
before offering himself as a candidate. There have 
been investigations by bureaus, departments, perma- 
nent commissions and Congressional committees. 
Sometimes they were set on foot ostensibly as a basis 
for legislation, and sometimes to obtain information 
upon which to base civil suits and criminal prosecu- 

131 



RESTRAINTS AND MONOPOLIES 

tions. But, what laws have been passed that reached 
to the root of any evil complained of? Not one. What 
actions have the Department of Justice successfully 
prosecuted that resulted in loss of liberty or special 
privilege to a trust magnate or rebater, or loss of 
power to any monopoly that was not regained in an- 
other form? While billions of tribute have been 
grasped in the form of exorbitant prices and railroad 
rates and fares, fines to the amount of about $350,000 
have been collected to date, and a half-dozen subordi- 
nates — mere money-passers — sent to jail. Still hold- 
ing their monopolistic powers, any one of the great 
railroads, or trusts, could recoup that amount from 
the public in a few days by simply increasing rates or 
prices the smallest fraction of a cent, requiring merely 
the stroke of a pen. 

"We will have it investigated." That is the cure- 
all, the end-all and the subterfuge. It is cheap for the 
public officer appealed to, but dear to the people de- 
manding a remedy and paying the investigators' bills. 
And let it not be forgotten that railroad kings and 
trust magnates to be investigated do not mind — in 
fact they rather enjoy — being investigated and having 
the fact of their supremacy advertised, so long as no 
laws are passed calculated to disturb their possessions. 

It requires the exercise of one's power of discrimi- 
nation and some knowledge of law to distinguish be- 
tween a permissible monopoly and one that is illegal 
at common law ; and such discrimination and knowl- 
edge are necessary in order to accurately measure the 
powers of Congress to regulate or suppress monopoly 
and determine clarly what it has already done. The 
lack of legal knowledge on the part of the public, and 
the fact that real light on the subject is not divulged 

132 



RESTRAINTS AND MONOPOLIES 

by the public press, are much relied on to save sena- 
tors and representatives from 'popular w^rath. 

On no other subject has there been quite so much 
confusion, misconception and deception. A great deal 
has been represented as having been done by legisla- 
tion and more was promised from time to time, when 
in truth very little more was possible in the way of 
legislation without an amendment of the Federal Con- 
situation, although a great deal more was possible by 
means of a strict enforcement of the anti-trust law. 

It is one purpose of these pages to show the utter 
hypocrisy of political parties herein, and of those who 
by partisan favor have been elevated to positions of 
trust and seats of power. The subject is somewhat 
complicated with constitutional law, but with that 
the public must some time grapple, the sooner the 
better. 

There is no law of Congress or of any State against, 
nor are there any positive common-law rules inimical 
to, mere monopoly. The courts, prior to the enact- 
ment of the Sherman Act, had for over a century rec- 
ognized monopolies as economic or industrial evils, 
but never had any repressive powers, except when mo- 
nopoly resulted from a restrictive agreement between 
two or more individuals, and one of them sought its 
judicial enforcement against others. Against such ar- 
rangements a rule of public policy — a sort of judicial 
fiction — was then invoked. 

But, even now, monopolies may be created which 
no Federal or State law can reach. Two or more men 
may buy up or lease every acre of pine timber in the 
world, and thus make every inhabitant of the earth 
as dependent upon them for pine lumber as upon 
change of seasons for crops; and yet, so long as no 

133 



RESTRAINTS AND MONOPOLIES 

agreement is made between them the direct effect of 
which is to curtail the contractual freedom of any indi- 
vidual, no court anywhere, as far as known, would 
have power to interfere with them, or to deprive them 
of any benefit arising from their monopoly. So that 
the only decisions by our courts, State or Federal, to 
be found, whether based on common law or statutes, 
whereby men or corporations have been held liable, 
either to be enjoined, mulcted in damages, or crimi- 
nally punished, are based upon agreements, express, 
or arising by implication from their conduct, in re- 
straint of trade. 

So we see that, owing to the peculiarities of our Fed- 
eral Constitution and to the partition of powers be- 
tween State and Federal governments, and also owing 
to the liberality of certain State legislation, there are 
ways of creating and maintaining monopolies for 
which no judicial remedy can be found. 

In 1890 an act was passed by Congress on the sub- 
ject of contracts or agreements in restraint of interstate 
commerce, intended to reach certain combinations 
formed by agreements between men and between cor- 
porations, called ''trust" agree ments. There have been 
few such agreements in a form to be dealt with un- 
der that act, because, as soon as it was passed, those 
desiring to monopolize or restrict interstate commerce 
found other methods for doing so than by making such 
agreements. There are to-day not many institutions 
or business arrangements within the inhibitions of that 
act, notwithstanding that trade, transportation and 
manufacturing monopolies are more numerous and 
powerful than ever before. 

A "trust" is only one form of combination denounced 
by the Sherman Anti-trust Act, though that term has 

134 



RESTRAINTS AND MONOPOLIES 

a much wider legal meaning than as used in the statute. 
In its broader legal sense, it arises from contract, also by 
operation of law, in all cases where one individual or 
corporation holds the legal title to property and an- 
other enjoys, or is to enjoy, in the future, the bene- 
ficial interest. A "trust" whereby a monopoly was 
created consisted in "tKe transfer of stocks of several j 
corporations to individuals, called trustees, or to a 
corporation, the legal title to be held by such trustees 
or corporation, while the persons making the transfers 
in trust received the dividends or otherwise enjoyed 
the beneficial interests. During the presidential cam- 
paign of 1900 Senator Hanna stated that there were 
no trusts, meaning no doubt that there were no mo- 
nopolies, the subject of popular complaint in the form 
of a trust. He was taken severely to task for that 
utterance and it was made the subject of much ridi- 
cule. And yet the Senator told the truth, having ref- 
erence to that particular period. The form of combi- 
nation above described was adopted in the eighties by 
a few great interests, notably the Standard Oil Com- 
pany and the North River Sugar Refineries. But 
such combinations were so obviously restrictive of 
trade, even under the common-law test, that they 
could be and were, some previously and others subse- 
quently, reached and dissolved through State courts. 

The people were long ago entitled to have explained 
to them the true intent and meaning of the decisions 
of the "trust" cases. But instead of clearly stating 
the situation, the successive heads of the law depart- 
ment of the Federal Government indulged in vague ex- 
pressions and mystifications. For instance, when the 
appeal in the "Beef Trust" injunction case was de- 

135 



RESTRAINTS AND MONOPOLIES 

cided by the Supreme Court, Mr. Moody, in an official 
interview, very truly said : 

"The opinion sustains in all respects the contentions 
of the Government. It makes clear that all combina- 
tions between independent individuals, partnerships, 
or corporations engaged in interstate commerce, by 
which competition between them in such commerce 
is suppressed, fall under the prohibition of the so- 
called Anti-trust Act." 

This was translated by the press — whether inten- 
tionally or not, of course, cannot be stated — to be a 
menace to all industrial monopolies, such, for in- 
stance, as the "Sugar Trust," the "Standard Oil 
Trust," etc. But it will be noted that Mr. Moody 
was cautious in his statement, only declaring the de- 
cision to be appHcable to combinations "between in- 
dependent individuals, partnerships, or corporations 
engaged in interstate commerce, by which competi- 
tion between them in such commerce is suppressed." 
He might well have added something like this : "But 
whatever the intentions of individuals who come to- 
gether and form a corporation under the laws of any 
State, the Anti-trust Law does not reach them, un- 
less they, expressly or by implication, show an in- 
tention to monopolize or restrain interstate commerce 
in their constating agreements ; therefore the decision 
offers no relief with reference to the other industrial 
monopolies of which there is a general complaint." 

Any lawyer who has studied the whole field of cor- 
poration, interstate commerce, constitutional and 
anti -trust laws and the history of the so-called 
"trusts" persistently and thoroughly knows that the 
legal status of many great industrial corporations is 
now beyond the reach of such a remedy as is af- 

136 



RESTRAINTS AND MONOPOLIES 

forded by any judicial procedure available to the De- 
partment of Justice. 

In all the great lines of manufacturing, as well as 
in production of materials to be used in further manu- 
facturing, as of finished products, there had been 
great demoralization, loss of profits and failures, dur- 
ing the period preceding the organization of such com- 
binations as the North River Sugar Refining Com- 
pany of New York and the Standard Oil Company of 
Ohio, both dissolved by decrees of the courts in these 
^tates. Many attempts of manufacturers to limit pro- 
duction and control prices by pooling arrangements, 
such as the railroads had resorted to, were attempted, 
and, as a rule, had failed, leaving matters in a worse 
state than before. The common-law inhibitions were 
sufficient to have undone the loosely organized trusts, 
even. without the statutes directed against them. But 
in 1889, and subsequently, a majority of the States, 
both by constitutional amendment and statute, de- 
clared uncompromisingly against all combinations 
and contracts in restraint of trade. In 1890 the Sher- 
man Anti-trust Law was passed by Congress. It was 
impossible that the trusts as then formed should sur- 
vive in so hostile an atmosphere. 

Prior to 1889 no State had ever by general law 
conferred upon corporations the power to purchase 
and hold, for purposes of voting and thus securing 
control, the stocks of other corporations. And the i 
courts had uniformly denied to them such power as a | 
common-law right. After the stringent State and 
Federal anti-trust legislation of the period just 
spoken of had made it impossible for the trust to ob- 
tain a legal footing, one State— New Jersey — was 
found willing to do that which hitherto it had been 

137 



RESTRAINTS AND MONOPOLIES 

found impossible to have done in any State. In 1889 
[ its incorporation law was so revised as to include 
among the lawful purposes of incorporation the right 
to purchase the stock of any company or companies 
owning, mining, manufacturing, or producing ma- 
; terials or other property necessary for their business, 
and to issue stock in payment therefor. In 1893 the 
scope of the New Jersey statute was further enlarged 
to read as follows : "Any corporation may purchase, 
hold, sell, assign, transfer, mortgage, pledge, or other- 
wise dispose of the shares of the capital stock of, or 
any bonds, securities, or other evidences of indebt- 
edness created by, any other corporation or corpora- 
tions of this or any other State, and while owner of said 
stock may exercise all the rights, powers, and privileges 
of ownership, including the right to vote thereon." 

Under this statute three or more men might form a 
corporation, and through it do, anywhere in the world, 
any and all business that any and all corporations 
formed in that or any other State could lawfully do, 
provided that in its organization it violated no New 
Jersey law and complied with certain easy require- 
ments of the New Jersey incorporation laws. This 
statute had important and far-reaching consequences. 
Many other States had enacted strict "anti-trust" 
laws, but a corporation organized under this New 
Jersey statute could, in any State, nullify the restrict- 
ive laws of such States by merely transferring a con- 
trolling interest in its stock to a corporation formed 
in New Jersey. So corporations in different States, 
engaged in any line of manufacturing — sugar, steel, 
petroleum, leather goods, tobacco, etc. — could come 
to an agreement in New York City or elsewhere 
and then have three or more office clerks incorporate in 

138 



RESTRAINTS AND MONOPOLIES 

New Jersey a million or a billion-dollar company. 
Then all they had to do in order to obtain complete 
immunity from the Federal, as well as from all State, 
"anti-trust" laws, was to have transferred to the new 
corporation a controlling interest of the combining 
companies. This done, a legal status was given to 
the combination, however restrictive of State and inter- 
state trade, however monopolistic in its design and 

power. 

It has often been asserted that the policy of New 
Jersey in thus amending her incorporation laws was 
vicious and discreditable to a sovereign State. But 
if it was, the same discredit attached to Delaware, West 
Virginia, Maine, New York, South Dakota, Nevada 
and Oklahoma for following her example. 

The incorporated trusts and other large corpora- 
tions having their origin in New Jersey cannot be 
prevented, either by Federal or State authority, from 
doing business in any part of the country where they 
find it profitable. No other courts have jurisdiction 
of proceedings against corporations to forfeit their 
charters or to restrain them from usurping franchises 
or powers than those of the States granting the char- 
ters, and, as we have seen, the laws of New Jersey, and 
of the other States mentioned here, protect them from 
such proceedings in their home courts. 

Now, by reference to a few Supreme Court decis- 
ions, the narrowness of the power of Congress to leg- 
islate, and the narrow limits within which the Sher- 
man Act is operative will be seen. 

In United States vs. Knight (156 U. S. Rep., 1), 
also in the later case of Anderson vs. United States 
(171 U. S. Rep., 604), the Court said that when it is 
seen that the agreement entered into does not directly 

139 



RESTRAINTS AND MONOPOLIES 

relate to, act upon, and embrace interstate commerce, 
and that it was executed for an entirely different pur- 
pose, and that it was calculated to attain it, the agree- 
ment would be upheld if its effect upon interstate com- 
merce were only indirect and incidental. In the Knight 
case, a corporation had been formed under the laws of 
a State. The organizers of it represented various 
other corporations and firms engaged in the refining 
of sugar in different States. The properties of all had 
been, or were immediately, transferred to this newly 
formed corporation, the American Sugar Refining 
Company, whose purposes, set forth in its articles, 
were the manufacture and sale of all kinds of sugar. 
The Court refused to look beyond the articles to dis- 
cover a purpose to monopolize interstate commerce in 
sugar, though, as a matter of fact, the corporation 
thus formed, or its successor, controlled 98 per cent, 
of the total output and is to-day as complete a monopo- 
ly as can be found. The Court also, in support of its 
decision adversely to the Government, said, in sub- 
stance, that Congress could not concern itself with 
the subject of manufacturing, and that it would not 
consider stock deals nor the proceedings to create cor- 
porations, nor their powers when organized. This 
line of delineation between what is and what is not within 
the provisions of the Sherman Act is also made clear 
in the Northern Securities case, where the decision 
was in favor of the Government, the Court saying: 
"What the Government has particularly complained of 
— indeed, all that it complains of here — is the existence 
of a combination among the stockholders of compet- 
ing railroad companies which, in violation of an Act 
of Commerce, restrains interstate commerce through 
the agency of a common corporate trustee designated 

140 



RESTRAINTS AND MONOPOLIES 

to act for both the companies in repressing full compe- 
tition between them." In that case the incorporators 
were a majority of the stockholders in certain inter- 
state railroads, the corporation formed by them being 
merely a holding, or trustee company, and it was suf- 
ficiently apparent from the constating agreements, in- 
cluding the articles, that the principal purpose of the 
Northern Securities Company was the monopolization 
of interstate commerce in a large section of the 
United States, and therefore the agreements were con- 
sidered within, and made the company so formed 
amenable to, the terms of the Sherman Act. 

But it seems to be settled by these cases that the 
mere manufacture and sale of a commodity, upon 
however extensive a scale, and though the sales are 
largely for delivery to citizens of other States, and 
though one manufacturing and selling company have 
a virtual monopoly, yet that does not render it a vio- 
lation of the provision directed at those who "mo- 
nopolize or attempt to monopolize interstate com- 
merce." It seems that to constitute a violation of the 
statute there must be an agreement, or the creation of 
relations amounting to a combination, in restraint of 
interstate trade, and that no amount of actual mo- 
nopolization, in the absence of such agreement or com- 
bination, will constitute persons or corporations vio- 
lators of the statute. With these two cases before us, 
we are the better able to understand the decision in 
Addyston Pipe and Steel Company vs. United States 
(175 U. S. Rep., 211). In the case just mentioned, it 
clearly appeared that the six defendant corporations 
were manufacturers for sale of steel pipe ; that together 
they produced about two-thirds of the entire produc- 
tion within well-defined boundaries, covering more 

14.1 



RESTRAINTS AND MONOPOLIES 

than one State, and that the agreement, as it was af- 
terwards carried out, was effective to shut out compe- 
tition and maintain prices above what they would have 
been without the agreement and co-operation under it. 
Had the stockholders of the six companies combined 
their properties and formed a new corporation, taking 
its stock for that of their respective companies, with 
only the usual specified purposes of a manufacturing 
corporation, they might just as effectively have mo- 
nopolized the business without violating the Sherman 
Act. The case would then have been "on all fours" 
with the Knight case. But the Addystone case dis- 
closed a combination in the nature of a pooling agree- 
ment instead of a corporation. The arrangement be- 
tween various packing companies came under the ban 
of the law in the "Beef Trust" case for similar rea- 
sons. 

We may obtain a clearer view of the theory and 
workings of the Sherman Anti-trust Act if we watch 
the progress and evolution of the beef business in this 
country. We will suppose that many years ago four 
butchers supplied the town of Chicago with fresh 
meat. Being injured by each other's competition, 
they agreed to pay less for live stock, or to sell for 
a higher price, or to do both. That is a contract in 
restraint of trade, but to be dealt with by State au- 
thorities exclusively. The same would have been true 
if all the butchers in the State of Illinois, or even all 
in the United States, had been parties to an agreement, 
so long as the trade of the combination was to be re- 
stricted to one State. Let us suppose, however, that 
our four butchers, without any such agreement, have 
become packers and dealers upon a colossal scale, have 
each taken in partners, and finally incorporated with 

142 



RESTRAINTS AND MONOPOLIES 

large capital stock, each company having branch 
houses in various cities in other States, each controll- 
ing one-fourth of all the slaughtering and packing in 
the United States. We will also suppose that their 
interests outside Chicago do not clash, one having its 
branch house in Kansas City, one in Omaha, one in 
Fort Worth, and the other in St. Paul, so that each 
has a complete monopoly over a large territory. Thus 
far there are four monopolies, one in each of the terri- 
tories adjacent to the respective branch establishments. 
Thus far neither can be reached by any provision of 
the Sherman Act under the decisions, nor for that mat- 
ter under any State statute. We may go still further 
without running counter to the act. Suppose the ma- 
jority interests in each and all of the four establish- 
ments unite in the formation of one great corporation 
under the laws, we will say, of New Jersey, and trans- 
fer to it all their properties and business, providing for 
the principal place of business and location of their 
central plant at Chicago, as could have been done un- 
der the New Jersey statutes. If their articles of in- 
corporation do not indicate a purpose to monopolize 
the buying, slaughtering, packing, and disposal of the 
products of live stock — as there would be no advant- 
age in doing — they are still immune from liability ac- 
cording to the decision in the Knight case. But sup- 
pose, instead of taking that course, they, as four dis- 
tinct corporations, arrive at a "gentleman's agree- 
ment," as separate corporations, not to bid against 
each other, to pool profits, to maintain prices, to co- 
erce rebates and special rates from the railroads (all of 
which, it was alleged, they did), the Sherman Act, if it 
were practicable to reach and deal with such secret 
undertakings, would be effective against them. 

143 



RESTRAINTS AND MONOPOLIES 

The defect of power on the part of Congress is inher- 
ent in limitations placed by the courts upon the defi- 
nition of the term ^'interstate commerce" as used in the 
Constitution. In Kidd vs. Pearson (128 U. S. Rep., 
1-22), the Court said: "If it be held that the term in- 
cludes the regulation of all such manufacturers as are 
intended to be the subject of commercial transactions 
in the future, it is impossible to deny that it would 
also include all productive industries that contemplate 
the same thing. The result would be that Congress 
would be invested, to the exclusion of the States, with 
the power to regulate, not only manufactures, but also 
agriculture, horticulture, stock-raising, domestic fish- 
eries, mining — in short, every branch of human indus- 
try. For is there one of them who does not contem- 
plate, more or less clearly, an interstate or foreign 
market?" In Gibbons vs. Ogden (9 Wheat., 1, 189, 
210), Chief Justice Marshall delivering an opinion 
said : "Commerce" (referring to interstate commerce) 
"undoubtedly is trafific, but it is something more — it 
is intercourse. It describes the commercial intercourse 
between nations and parts of nations in all its branches, 
and is regulated by prescribing rules for carrying on 
that intercourse." And so the court in the Knight 
case held that that which belongs to commerce within 
this sense is within the jurisdiction of the United 
States, but that which does not belong to such com- 
merce is within the jurisdiction, or police powers, of 
the States. And further along, Chief Justice Fuller, de- 
livering the opinion in the latter case, after quoting 
and discussing Chief Justice Marshall's definition, said : 
"The fact that an article is manufactured for export 
to another State does not of itself make it an article of 
interstate commerce, and the intent of the manu- 

144 



RESTRAINTS AND MONOPOLIES 

facturer does not determine the time when the article 
or product passes from the control of the State and 
belongs to commerce." Again, in Anderson vs. United 
States (171 U. S. Rep., 604), it was held that whether 
the members of a trader's live stock exchange were 
or were not engaged in the business of interstate 
commerce was immaterial, as the agreement proved 
was not in restraint of trade and did not regulate such 
commerce. 

Thus we have a thorough judicial settlement of the 
meaning of interstate commerce as used in the Con- 
stitution, and no court or legislative body can 
change, enlarge or limit that definition as thus ad- 
judicated. 

Considering all these decisions and limitations upon 
the meaning of interstate commerce, two important 
propositions are beyond the pale of controversy^ First, 
the Sherman act contains the full measure oT the 
power of Congress under the Constitution to enjoin and 
punish for entering into and carrying out contracts re- 
strictive of trade, and, ^cohHly, that there are many 
great monopolies, the subject of interminable newspaper 
and political comment, which cannot be reached under 
the terms of that act, or under any act directed at the 
mere character of the organizations, which Congress has 
constitutional power to enact. 

So it must be constantly borne in mind that there ^ 
is, having reference now to the Sherman Act, such a 
thing as a practical monopoly distinct from a monopoly 
in the illegal or restrictive sense. A monopoly se- 
cured by buying out, or even by rendering unprofita- 
ble all competition, and thereby suppressing it, could 
not, as previously explained, be hindered or interfered 
with under the common law, nor under any State law \ 

145 \ 



/ 



RESTRAINTS AND MONOPOLIES 

in force anywhere, nor under the Sherman Act, in 
the absence of a restrictive agreement between the 
surviving and defunct establishments. And until the 
power to create corporations is taken away from 
every State in the Union it is impossible to conceive 
of any limitation upon the concentration of capital in 
a single corporation. 

One of the main contentions in the Knight case, 
and one of the main reasons advanced for deciding 
adversely to the Government was that, notwithstanding the 
showing that the American Sugar Refining Company, 
after the combination, controlled 98 per cent, of the 
production and sale of refined sugar in the United States, 
yet it did not necessarily follow that it had monopolized 
that trade, because the field was still open for any one 
who wished to enter. That part of the decision has been 
practically overruled, or rather disregarded by the 
courts. 

As long as one State remains with corporation laws 
similar to those of New Jersey, Delaware, West Vir- 
ginia, South Dakota, Nevada (a score could be men- 
tioned) this could happen. Ten men, each in a sepa- 
rate State, having ten million dollars invested in 
iron and steel production, being all the plants in the 
country, conclude to incorporate under the laws of 
(for instance) Delaware, each to take for his plant 
twenty million dollars of stock, the new company to 
carry on as one institution the business which had 
been previously done by the ten men separately. If 
one can buy another out, why cannot one and five 
of his neighbors, or five strangers, incorporate a com- 
pany and buy him out? If they may, why cannot 
the ten iron manufacturers of fifteen different States 
form the company and then all sell to the company? 

146 



RESTRAINTS AND MONOPOLIES 

And if they might sell to it for cash, why not for 
stock? And if so, would the Government be per- 
mitted to deprive them of the privilege of agreeing 
among themselves upon the stock valuation of their 
respective plants? Really no one is injured by the 
issue of an amount of stock less or more than any 
other amount, since no one is under the slightst com- 
pulsion to invest a dollar in it. Here we have an il- 
lustration of an actual monopoly with its stock half 
water, as the term is generally understood, with no 
statute or common-law principle in the way of its 
buying the raw material of iron and steel manufac- 
tured at the lowest cost of production and exacting 
from the consuming public the utmost penny the 
commodity will bear. And yet Congress is flooded 
with bills directed against stock markets and stock 
watering. 



147 



CHAPTER VIII 

MEANING OF STANDARD OIL AND TOBACCO 
COMPANY DECISIONS. 

The trust question or problem, speaking now with 
reference to immediate legislative action, is one about 
which language may be very freely used without con- 
tributing anything of value. And yet it is one of such 
vital importance that no one having what he hon- 
estly believes to be valuable views should hesitate to 
submit them, with becoming modesty, to those 
charged by the Constitution, under oath, with the 
duty to take responsible action. Senators, Represen- 
tatives and Committees have invited free expressions 
from individuals, but they have especially encouraged 
outside suggestions by the divergence of their own 
views on nearly every important phase of the subject. 

The situation is peculiar in this, that the complaint 
of injury resulting and to result from non-action and 
the corresponding demand for legislation does not 
emanate, except to a very limited extent, from the 
great body of purchasers and consumers of so-called 
trust-made articles, though they are the class having 
a just cause to complain in case of extortion or ex- 
orbitancy. Leaving out the mere agitators and theor- 
ists, those having most to say, and who probably be- 
lieve themselves most directly and vitally affected, belong 
to the class of what we call business men. And there is 
ample evidence in the voluminous record of hearings be- 

148 



MEANING OF S1V.NDARD OllL DECISIONS 



fore committees upon which to base a finding that most 
of these charge up their trouble to the wrong cause. 

Let's suppose now that some statesman and philoso- 
pher of former times, Moses or Socrates, or Adam 
Smith, or Thomas Jefferson should come to our shores 
and find all our people assembled under the Constitution 
and flag ready to be assigned by him to varying duties. 
Does any one suppose he would bother vei-y long about 
who should effect the exchanges of value between indi- 
viduals? Of course not. He would first assign, guide, 
direct, and make rules to promote the interests of labor- 
ers and those who bring forth the products, finished and 
unfinished, of agriculture, mining, forestry, and fisheries, 
well knowing that there would be a sufficiency and to 
spare of volunteers to undertake the trading, money 
lending, and changing the place and form of what was 
produced. That would be a salutary and wise plan of 
projecting a commonwealth with such a governmental 
structure as ours, and a safe theory upon which to carry 
it along after such a beginning. Those who produce 
from the fields, orchards, forests, mines, waters and 
stock ranges, cannot conveniently organize and make 
their presence directly felt in the halls of legislation, and 
for that very reason, and because the business classes 
can so organize, the former classes must depend upon 
the free untrammelled will of their representatives for 
the promotion and protection of their interests. They 
constitute a very large majority of those who bear, or 
upon whom are shifted, the burdens of taxation, and are 
entitled to first consideration. They do not require reg- 
ulatory, but rather conservatory and protective laws. 
Regulation and espionage are needed for those who find 
it convenient and profitable to organize for purposes of 
exploitation. 

149 



MEANING OF STANDARD OIL DECISIONS 

But the legislative department exercised its full power 
with respect to monopolies and illegal organizations, in 
so far as they placed restraints upon commerce, more 
than twenty years ago. Why then have complaints, be- 
cause of oppression and exorbitancy resulting from re- 
straints and monopolies, continued and increased? Why 
does the subject of further legislation by Congress to- 
day rock society to its foundation? 

The Senate Committee on Interstate Commerce made 
a report in February, 1913, through Senator Cummins, 
and while no attempt was made therein to diagnose the 
whole situation, it contained a partial answer to the last 
of the above queries, in these words : 

In order to look at the subject in the light of illustration, 
it is suggested that there will presently come before the courts 
the combination centered in the United States Steel Corporation. 
In the end nine justices of the Supreme Court will be asked to 
say whether the restraint of trade brought about through this 
combination is a due or an undue restraint, and the answer wh^ch 
each justice makes to that question will depend upon his indi- 
vidual opinion as an economist or sociologist, the conclusion 
of the court being in substance an act of legislation passed 
by the judicial branch of the Government to fit a particular case. 
Further, it is believed by many thoughtful people that a substan- 
tial identity in the managing boards of competing corporations 
constitutes a restraint of trade and is harmful to the public 
interest. If such a case were brought before the court, what 
would be the "rule of reason ?" What guide would the court have 
in determining whether such community of directors or managers 
was a due or an undue restraint of trade? Again, suppose there 
were a dozen establishments in a given field of production com- 
peting with each other and six of them were to consolidate, em- 
ploying half of all the capital and advancing the consolidated 
enterprise to a dominating position in the trade, where would 
the judge go for light in determining whether the restraint of 
trade was due or undue? These illustrations might be indefi- 
nitely extended, but it would serve no useful purpose to multiply 
them. 

It is scarcely necessary to add that the part here quoted 
was preceded by an able review and criticism of the de- 
cisions of the Supreme Court in the Standard Oil and To- 

150 



' MEANING OF STANDARD 0:'L DECISIONS 

bacco Company cases. These decisions will be now fur^ 
ther noticed. 

At the start, and as a very important test of the sound- 
ness of what follows, it may be stated that the common 
law doctrine of reasonableness was confined to contracts 
in restraint of trade. If the restrictive stipulation in a 
contract was reasonable, the contract was valid and en- 
forceable ; if it was unreasonable, then, in legal sense, it 
was not a contract at all, but amounted to a combination, 
condemned by the law and rendering those entering into 
it liable to indictment. The authorities, English and 
American, firmly establish this proposition. Any law- 
yer having any doubts on the subject would be freed 
from them if he read pages 1814-1816 of the Hearings 
before the Senate Committee on Interstate Commerce in 
1912, pursuant to Senate Resolution 98. It is then a fair 
test of the soundness of the court's decision in the Stand- 
ard Oil and Tobacco Company cases to ask and answer 
the question whether it had before it a contract or a com- 
bination, bearing in mind that a conspiracy is merely one 
form of combination. That it was a combination in the 
form of a conspiracy is conclusively shown by the Court 
itself in the case of the American Tobacco Company 
(221 U. S., 182), where it said: 

Again, not alone because of the dominion and control oyer 
the tobacco trade which actually exists, but because we think 
the conclusion of wrongful purpose and illegal combination 
is overwhelming established by the following considerations, etc. 

In the committee report above referred to we also find 
the following significant and emphatic language: 

The committe has full confidence in the integrity, intelligence 
and patriotism of the Supreme Court of the United States, but 
it is unwilling to repose in that court, or any other court, the 
vast and undefined power which it must exercise in the admin- 
istration of the statute under the rule which it has promulgated. 

151 



MEANING OF STANDARD OIL DECISIONS 

It substitutes the Court in the place of Congress, for whenever 
the rule is invoked the court does not administer the law, but 
makes the law. If it continues in force, the Federal courts will, 
so far as restraint of trade is concerned, make a common law for 
the United States just as the English courts have made a common 
law for England. 

The people of this country will not permit the courts to declare 
a policy for them with respect to this subject. If we do not 
promptly exercise our legislative power, the courts will suffer 
immeasurable injury in the loss of that respect and confidence 
so essential to their usefulness. It is inconceivable that in a 
country governed by a written constitution and statute law the 
courts can be permitted to test each restraint of trade by the 
economic standard which the individual members of the court 
may happen to approve. If we do not speedily prescribe in so 
far as we can, a legislative rule by which to measure the forms of 
contract and combination in restraint of trade with which we are 
familiar or which we can anticipate, we cease to be a govern- 
ment of law and become a government of men, and, moreover, 
of a very few men and they appointed by the President. 

It may be that the Supreme Court will be so enlightened and 
so alert that its opinion respecting what is due and what is undue 
restraint of trade will be in harmony with an awakened public 
conscience and a disinterested public judgment, but to fashion 
our conduct upon that hypothesis is to repudiate the funda- 
mental principles of representative government. 

But the part just quoted is preceded by language which, 
to say the least, cannot be reconciled to, or harmonized 
with it, in the words : 

Whatever may be the opinion of the several members of the 
committee with respect to the soundness of the rule as now 
established, the committee as a whole accepts it as the present 
law of the land. It is profoundly convinced that, in view of the 
rule and its necessary effect upon the businesses of the country, 
the inherent rights of the people, and upon the execution of the 
statute it has become imperative to enact additional legislation. 

Why a roundabout method of getting rid of the de- 
plorable results of the decisions so forcefully portrayed 
by Senator Cummins, such as attempting to enact statu- 
tory definitions, when it would be much easier and safer 
to do it directly by merely changing the phraseology of 
two sections of the act in which the court interpolated 
the objectionable term "undue" or "unreasonable," does 
not appear, and cannot be made to appear. 

152 



MEANING OF STANDARD OIL DECISIONS 

The same report makes it just as clear as language 
can make it that the statute does not cover indirect, or 
incidental restraints. That is shown by several decis- 
ions of the Supreme Court therein cited, from which 
there is and never has been any dissent. Then why not 
amend the first and third sections to read thus : "Every 
contract, combination in the form of trust or otherwise, 
or conspiracy in any degree, or to any extent in direct 
restraint of trade or commerce," etc. The same result 
would be accomplished by the adoption of another form, 
making the first section read as follows : "Every con- 
tract, combination in the form of trust or otherwise in 
restraint of trade or commerce among the several States 
or with foreign nations, whether the restraint be such 
as at common law or according to any decision or decis- 
ions of any United States court w^ould be due or undue, 
reasonable or unreasonable, is hereby declared to be il- 
legal." Also making the equivalent change in the' third 
section. Had the committee been unanimous in its con- 
clusions, or substantially so, anything advanced here ad- 
ditional would be superfluous and appear presumptuous. 
But unfortunately it was far from being so. And the 
discord in the committee is fairly representative of the 
diversity of views found in the Senate and House, in 
official circles generally, and at large. What follows is 
offered by way of support for the conclusion of the ma- 
jority of the committee that the decision of the Supreme 
Court in the Standard Oil and Tobacco Company cases 
is unsound and vastly prejudicial. Several propositions 
will be advanced and supported by reasoning and au- 
thority, any one of which, if admitted, being equivalent 
to a condemnation of the decision. 

First, the court basing its conclusion on common law 
doctrines, it is erroneous, because at the common law the 
# 153 



MEANING OF STANDARD OIL DECISIONS 

rule of reasonableness was never applied if the act con- 
demned by the law was indictable. The Anti-trust Act 
penalizes alike the entering into contracts and combina- 
tions in restraint of trade. It seems a palpable contradic- 
tion in terms to speak of that as a contract which in the 
same sentence is declared to be illegal. According to 
the common law, though they are called "contracts," 
they are, when restrictive of trade, really combinations. 
Now all combinations in restraint of trade were indicta- 
ble at common law, as they are under the Sherman Act, 
and the question of reasonableness does not enter at all. 
The reason is that a thing cannot be punished as a crime 
if its quality as such or as an innocent act must be de- 
termined by such a mere matter of opinion as reasona- 
bleness or unreasonableness. 

The first sentence of the Anti-Trust Act would mean 
just the same if it omitted the words "contract," "trust," 
and "conspiracy." An illegal contract is a combination, 
and a conspiracy is as much a mere form of combination 
as is a trust agreement. Only reference to the law dic- 
tionaries is needed to show this. For instance, Bou- 
vier's Law Dictionary defines combination as "A union of 
men to violate the law," and a conspiracy as "A combina- 
tion of two or more persons, by some concerted action, to 
accomplish some criminal or unlawful purpose, or to ac- 
complish some purpose not in itself criminal or unlawful 
by criminal or unlawful means." No part of the opinion 
in the Tobacco Company case is clearer than that in 
which is stated, as already quoted, the illegal character of 
the restrictive arrangement; that is that it was a combi- 
nation. So that the Anti-trust Act would have been just 
as comprehensive if it merely declared "Every combina- 
tion in restraint," etc. And the Court, in effect, placed 
the word "undue" or "unreasonable" before the word 

154 * 



MEANING OF STANDARD OIL DECISIONS 

"combination," in its illegal and criminal sense and held 
that before there could be either civil redress or punish- 
ment, the government must prove an "undue" or "un- 
reasonable" crime. 

Now let us glance at the form of language and arrange- 
ment of the words at the beginning of Section 1 of the 
Sherman Act, bearing in mind what has been said of the 
identity of meaning of combination and conspiracy. 
"Every contract, combination in the form of trust or 
otherwise, or conspiracy in restrait of trade," etc., "is 
hereby declared to be illegal." Could the legislature, 
using these words in this relation, have possibly intended 
that the word "unreasonable" should be interpolated by 
construction before the word "restraint," with reference 
to the word "contracts," and not also with reference to 
the words "combination" and "conspiracy"? Again, if 
the common law governs, and the adjective "every" ap- 
plies in the same sense to each of the three nouns, then 
why should it be required that a contract appear to be 
unreasonable in order to enjoin or penalize it, unless an 
unreasonbale element be essential in cases of combina- 
tions and conspiracies ? But at the common law, as has 
already been shown, combinations and conspiracies in re- 
straint of trade were indictable, and, of course, illegal, 
without any question as to the degree or extent of the 

restraint. 

The confusion of thought has no doubt arisen from the 
fact that if at the common law a restrictive arrangement 
came before the court in a civil action, it was called a 
contract. If the same arrangement came before the 
court in a criminal case, as might and often did occur, it 
was called a combination or conspiracy. So that where 
the arrangement was really restrictive, in illegal sense, the 

155 



MEANING OF STANDARD OIL DECISIONS 

terms contract and combination might be interchangeably 
used to describe it. 

The Supreme Court has not merely substituted what 
is supposed to be the common law rule, meaning one 
thing, for what Congress enacted of a different mean- 
ing, but by applying the doctrine of reasonableness to 
combinations or conspiracies it establishes a rule found 
neither in the statute nor in the common law. 

Second, common law rules and distinctions cannot be 
properly resorted to by the courts for the purpose of in- 
terpreting the laws passed by Congress. For more than 
a hundred years it had been the established view, ex- 
pressed in many decisions, that the public policy of the 
United States was in the care and keeping of Congress, 
and that our courts are not at liberty, as are the courts of 
England, to invoke and apply that unstable and inde- 
finable thing, found outside all written laws, and known 
as public policy. If this new power is retained and exer- 
cised, the purpose and effect of almost any statute of a 
general nature are liable to be changed to meet a judicial 
view of what the public interest, or policy, demanded at 
the hands of Congress, though not expressed. And even 
though Congress may by the most explicit terms declare 
a certain act to be a criminal offense, a court may find 
outside the terms of the statute a public policy, borrowed 
from the common law and used as a touchstone or test 
in determining how far, or if at all, the expressed will of 
Congress shall prevail. Nothing had been so well set- 
tled and generally accepted as that the common law was 
no part of Federal jurisprudence, and that its princi- 
ples were of merely persuasive or argumentative force. 
Now, if a rule of public policy peculiar to the common 
law, and nowhere else to be found, can be set up to 
change the meaning and settled construction of a statute, 

156 



MEANING OF STANDARD OIL DECISIONS 

is there any rule or principle that may not be employed 
to the same end? 

And what was the nature of this abstraction which, as 
a result of the recent decisions, is hereafter to abide with 
the courts and not be entrusted to Congress? In Davies 
V. Davies (36 Ch. Div., 359) it was said that "public policy 
is a variable quantity; that it must vary, and does vary, 
with the habits, capacities, and opportunities of the pub- 
lic." In Richardson v. Mellish (2 Bing., 229) that "it 
is a very unruly horse, and when once you get astride 
it you never know where it will carry you." And in 
Woodruff V. Berry (40 Ark., 251) that "we are aware 
that courts tread upon thin ice when they annul contracts 
because they contravene, or are supposed to contravene, 
considerations of public policy." There is much of the 
same import in Hilton v. Eckersley (6 El. & Bl., 47) and 
in other cases. 

What Congress intended to say, and what it meant to 
say, according to this view of the court, was not that 
"Every contract, combination," etc., "in restraint," etc., 
but "Every contract, combination in the form of trust 
or otherwise, or conspiracy, in unreasonable (or undue) 
restraint," etc. Can we believe that a Congress of schol- 
ars, lawyers and statesmen said the one thing and meant 
the other, so very different in meaning? If Congress 
had meant merely to rest upon the common law prohi- 
bition, why didn't it merely prescribe the penalty and the 
civil remedy and stop there? 

Third. Persons (corporations being included in the 
term as used in the Act) obviously occupy no stronger 
relation to the power of Congress to regulate interstate 
commerce than the individual States ; and it has been 
frequently held that a State cannot directly interfere with 
interstate commerce to any extent whatever. 

T^57 



MEANING OF STANDARD OIL DECISIONS 

In Robbins v. Shelby District (120 U. S., 489) we have 
a decision typical of many. It was declared that "inter- 
state commerce cannot be taxed at all." Long prior to the 
Anti-trust Act the courts were constantly applying the 
rule or principle of non-interference with the freedom of 
commerce to State interferences, a rule such as that ap- 
plied by Congress to private restraints when it passed the 
anti-trust act. And by parity of reasoning the rule 
adopted by Congress, like that drawn from the Constitu- 
tion and applied by the courts, was one not qualified by 
any common law doctrine, and which admitted of no 
modification or exception. The similarity of the rule of 
exclusiveness where State legislation is involved, and the 
rule that should apply in cases arising under the anti- 
trust act, was mentioned by the Court in Hopkins v. 
United States and in Addystone Pipe Co. v. United 
States. According to this rule, to admit that a State or 
city might reasonably or in some small way tax interstate 
commerce, the extent to be determined by the courts, 
would, of course be absurd. But is it any less absurd to 
admit or assert that corporations and individuals might 
"reasonably" restrain it, and thereby regulate interstate 
commerce, the meaning of the qualifying term to be fixed 
by the courts? The power of a State to reasonably tax 
interstate commerce would be the power to reasonably 
regulate it and the same would be true of a power to rea- 
sonably restrain it, if such power could be extracted by 
construction from the Anti-trust Act. It seems very clear 
that when Congress came to express its will with ref- 
erence to these interferences by private parties, it spoke 
in the same sense and with the same comprehensive 
scope as had characterized the decisions of the courts in 
dealing with similar conditions. 

That each restraint upon interstate commerce is pro 

158 



MEANING OF STANDARD OIL DECISIONS 

tanto a regulation and an invasion of the power granted 
by the Constitution to Congress, exclusively, is shown in 
the Addystone Pipe case (175 U. S., 226-248), where 
Justice Peckham concluded upon that branch of the de- 
fendant's contentions with these words : 

We conclude that the plain language of the grant to Congress 
of power to regulate commerce among the several States mcludes 
power to legislate upon the subject of those contracts m respect 
to interstate or foreign commerce which directly affect and regu- 
late that commerce, and we find no reasonable ground for assert- 
ing that the constitutional provision as, to the liberty of the 
individual limits to the extent of that power, as claimed by the 
appellants. 

Fourth. The common law and its doctrines could 
have no application to the legislative branch of govern- 
ment created long after the formative period of the com- 
mon law had ended ; still less could it apply to a subject 
matter, here interstate commerce, which came into exist- 
ence as a part of the new system inaugurated by the 
adoption of the Constitution. 

There never was any such thing in England or known 
to the common law system as interstate commerce, nor 
was there anything resembling it. Interstate commerce 
pertains to all the States, not to one or any number other- 
wise than in their capacity and relation as members of the 
Union of States. A transaction beginning in New York 
and ending in Jersey City is not merely a New York-New 
Jersey matter, but concerns every State and every citizen 
in every State. It is essentially national. If interstate 
commerce could be locaHzed, if it could belong or pertain 
to any number of States or persons less than the whole, 
then it would not be subject to the regulative power of 
Congress, each of whose enactments extend throughout 
the length and breadth of the nation, and to all its people. 
Now, in England, that is to say, under the regime of 

159 



MEANING OF STANDARD OIL DECISIONS 

the common law, as already explained, the doctrine of 
reasonableness was essentially local, besides being lim- 
ited to contracts as already defined. Under no circum- 
stances could one preclude himself or be precluded, gen- 
erally, from following his avocation or carrying on busi- 
ness in the whole kingdom. Such an agreement was not 
only void on its face, but could not be made good. And 
since the subject of interstate commerce has scope coex- 
tensive with the whole country and is incapable of being 
localized, it must follow that any restrictive contract hav- 
ing that for its subject matter, and without reference to 
degree of the restraint, is void. As to combinations and 
conspiracies, if indeed they be distinguishable from con- 
tracts for present purposes, there are additional reasons, 
as already shown. 

Further light upon the decisions in the two cases and 
other cases following them is now offered. 

As the first and third sections of the anti-trust act now 
stand it is made to appear that there are three forms in 
which restraint upon trade may be applied. But when we 
carefully examine the matter, we find that, for the pur- 
poses of the statute, no such classification is permissible. 
There is no better reason for speaking of a contract be- 
tween two or more to restrain trade, than of a contract 
between them to commit arson or burglary. When, 
prior to the statute, the courts spoke of illegal contracts in 
restraint of trade, they used the term conventionally and 
for convenience, following the forms of expression used 
by the judges in passing upon civil cases presented be- 
fore them under the common law. The only method by 
which such question could reach a court was where an 
action was brought on an agreement and defended on 
the ground of its illegality in that it placed a restraint 
upon the defendant with respect to his trade or calling. 

i6o 



MEANING OF STANDARD OIL DECISIONS 

If upon being examined the objection was found to be 
well taken, that was the end of the matter unless the 
plaintiff could successfully rejoin that the restraint was, 
under all the circumstances, reasonable, in other words, 
that the public detriment would be insignificant or negli- 
gible, and that the restraint was only such as was neces- 
sary to secure him in the enjoyment of the benefits of, or 
consideration for, the agreement. If he was unable to 
make such showing, the eourt would hold the contract 
void, equivalent to holding there was none whatever and 
placing the transaction in the category of combinations, 
in illegal and indictable sense. 

The rule, as laid down by Lord Macclesfield and Lord 
Chief Justice Willes (Master, etc., of Gunmakers, v. 
Fell, Willes R., 388), was that total restraints of trade, 
which the law so much favored, were absolutely bad, and 
that all restraints, though only partial, if nothing more 
appeared, were presumed to be bad; but if the circum- 
stances were set forth, that presumption might be exclud- 
ed, and the court was to judge of those circumstances and 
determine whether the contract be valid. Same ruling in 
Mitchell V. Reynolds (1 P. Wms., 196). 

In Horner v. Graves (7 Bing., 744) the court said (per 
Chief Justice Tindel) : "Contracts in restraint of trade 
are, in themselves, if nothing shows them to be reasonable, 
bad in the eye of the law." 

If there be simply a stipulation, though in an instru- 
ment under seal, that a trade or profession shall not be 
carried on in a particular place, without any recital in 
the deed, and without any averments showing circum- 
stances which rendered such a contract reasonable, the 
instrument is void. (Pragnell v. Close, Aleyn, 67 
The Ten Tailors of Exeter v. Clarke, 2 Show., 350; 

i6i 



MEANING OF STANDARD OIL DECISIONS 

Claygall v. Bachelor, Owen, 143 ; Year Book, 2 Hen., 5, 
fol. 5.) 

Some confusion is found in legislative and judicial dis- 
cussions of minor branches of the subject. For instance, 
the relation of any particular restraint to commerce ob- 
viously should not be confounded with the degree of re- 
straint. Whether restraint be direct or indirect is a 
question determinable upon facts and calls for a finding 
such as might be returned by a jury. But where the facts 
are all before the court, supposing the doctrine of rea- 
sonableness to be established in Federal jurisprudence, 
if an issue be raised upon the reasonableness or unrea- 
sonableness of the restraint, that is a question of law 
for the court. The principle of reasonable construction 
has a close relation to this question, but plays no part in 
an issue of whether a restraint be direct or indirect. But 
in the Standard Oil case the Chief Justice ignored this 
distinction and reasoned that if indirect or incidental re- 
straint ought to be taken out of the statute, that would 
amount to an admission by the court in the prior decis- 
ions which he was then reviewing that "reasonable" 
agreements (combinations) should also be taken out. 
Here is part of what he said on the point (p. 66) : 

If the criterion by which it is to be determined in all cases 
whether every contract, combination, etc., is a restraint of trade 
within the intendment of the law, is the direct or indirect effect 
of the acts involved, then, of course, the rule of reason becomes 
the guide, and the construction which we have given the statute, 
instead of being refuted by the cases relied upon, is by those 
cases demonstrated to be correct. 

He then continues to argue that it necessarily follows 
from the fact that a resort to reason to distinguish be- 
tween direct and indirect restraint is necessary, the ques- 
tion of reasonableness is ever present, and his language 

162 



MEANING OF STANDARD OIL DECISIONS 

expressly brings combinations and conspiracies under the 
rule along with restrictive contracts. 

When the Chief Justice had reached the point in the 
opinion where the case must be disposed of, he adopted 
the ultimate view of the lower court, expressly declaring 
the arrangement presented in the general name of the 
Standard Oil Co. to be a combination and conspiracy (p. 
74). And yet (p. 67), in order to follow and affirm the 
decision of the lower court, he insisted that it was neces- 
sary to invoke the doctrine of reasonableness. And in 
the Tobacco Case (p. 179), he said: 

The act of Congress must have a reasonable construction, or 
else there would scarcely be an agreement or contract among 
business men that could not be said to have, indirectly or re- 
motely, some bearing on interstate commerce and possibly to 
restrain it. 

In determining whether the prohibitions of the statute 
are infringed in any particular case, courts necessarily 
exercise judgment and reason. That is why courts were 
instituted and are maintained. In the judicial adminis- 
tration of all statutes the reasoning faculties must be 
brought into play. That is necessary in differentiating 
direct from indirect restraint. But fixing the boundary 
line separating restraint which is direct from that which 
is indirect is quite a different thing from fixing a point at 
which restraint ceases to be reasonable and becomes un- 
reasonable. There are no broader and vaguer terms in 
the language than the latter. They are coextensive with 
and give rise to as many conflicting views and opinions 
as "just" and "unjust." There is scarcely a limit to the 
matters necessary to be considered in the application of 
a test of reasonableness in dealing with combinations, 
nor could a permanent settlement of such a question ever 
be reached. Individuals may form a combination or may 

163 



MEANING OF STANDARD OIL DECISIONS 

have formed one years ago which to-day is investigated 
and adjudicated by the Supreme Court to be unreasona- 
ble. It is dissolved, and out of its wreck a new entity 
arises, the reasonableness of which may be immediately 
challenged. A new litigation is then instituted to try the 
same issue, and so on ad infinitum. No decision can be 
of controlling importance or of any permanent value as a 
precedent. 

There are to be found no English cases involving com- 
binations, monopolies, and conspiracies in oil, tobacco, 
iron and steel, sugar, and food products ; few, in fact, 
of any kind. So far as known, there is no statute in 
England similar to our anti-trust act. It appears not to 
be needed, because these are common-law crimes and are 
not condoned and excused as they often are in this coun- 
try, but are prosecuted and punished. No civil remedy is 
needed in England. And it might have been better if no 
civil remedy had been provided in the Anti-Trust Act, 
since the enforcement of civil remedies is so dilatory and 
unsatisfactory. The conduct of civil business in the courts 
by the Department of Justice is enormously expensive, 
and recent results have been fraught with evil rather 
than good. 

The country has had a strange and sad experience in 
its warfare against combinations and conspiracies in re- 
straint of trade. It took many years of protest and agi- 
tation to obtain the enactment of any such statute as the 
Sherman Act. A prompt and vigilant enforcement of it 
would have forestalled the complications which are now 
the pretext for appealing to Congress and the courts on 
the score of vested rights and business readjustments. 
But there ensued more than ten years of vacillation, 
apology, and inaction, with instances of palpable incom- 
petency or collusion. During the past seven or eight 

164 



MEANING OF STANDARD OIL DECISIONS 

years, owing to the previous inaction, those charged with 
the duty of enforcement were confronted with almost 
insuperable difficulties, which never would have arisen 
had prior officials done their duty. The tentacles of mo- 
nopoly were allowed to deeply penetrate the fabric of 
commerce and manufacturing in all directions. The task 
of the Government was large, and the outlook discourag- 
ing at best. But with the recent interpretations and the 
uses made of them there is cause for general discontent. 
Some able members of the bar have suggested that a 
few more well-reasoned decisions would be sufficient to 
remove the uncertainty created by the two recent decis- 
ions. But, inasmuch as the court confounds or places 
in the same category contracts and combinations, no 
amount of adjudication would clarify the subject: One 
decision making the distinction and limiting the applica- 
tion of the doctrine of unreasonableness to contracts 
alone would so narrow the sphere of uncertainty that no 
one need be greatly prejudiced by it. But it is too 
much to expect that the court will reverse itself so com- 
pletely within a reasonable period. 

Every phase and each disputed point in the course 
of many previous decisions had been met and settled by 
the courts prior to the Standard Oil and Tobacco Com- 
pany cases. Instead of the meaning of the statute being 
still uncertain and obscure, no Federal statute could be 
named as to which there had been such extensive and 
comprehensive judicial discussion. No case had ever 
come before the courts to which the prohibitory terms 
of the act were held applicable in which the moral ob- 
liquity of the conduct condemned was not at least equally 
as conspicuous as the legal dereliction. The law had 
been made so clear by frequent elucidations that it was 
impossible for men to violate it without experiencing 

165 



MEANING OF STANDARD OIL DECISIONS 

a consciousness of guilt. The courts had established a 
standard as easily discoverable and understandable as 
any ever established under a statute dealing with so broad 
a subject — a standard just as clear and certain as the 
nature of the subject matter of the legislation admits of. 
The courts had said and reiterated the rule that any 
contract or combination the direct and necessary effect of 
which was to restrain commerce was within the statute, 
and the suppression of competition by agreement or 
combination was the equivalent of, or might be identical 
with, such restraint. No one carrying on a business or 
planning a business enterprise to be conducted by legiti- 
mate methods could be harassed by any fears or doubts 
about its legality. 

In the absence of contract, combination, or conspiracy 
there is neither restraint of trade nor restraint of com- 
petition, though there may be elimination or destruction 
of competition. So that, if it is ever thought necessary 
to protect interstate commerce from mere monopoly, cre- 
ated by one individual or corporation, proceeding by 
normal methods, it cannot be done under existing laws. 
A mere destruction or elimination of competition in a 
particular line of business, in the absence of restraint, is 
not condemned by this statute. Any normal monopoly 
destroys competition, and merely to acquire and maintain 
exclusiveness by normal business methods has been held 
not to be within the rule of the act. To find a remedy 
for monopolies so created, Senators, Representatives and 
the Executive Department have been and are seriously 
concerned. But the anti-trust act as originally enacted 
and intended by Congress was ample for all forms of 
restraint and monopolizing other than that just men- 
tioned. The only trouble was with its enforcement, or 
rather non-enforcement. 

i66 



MEANING OF STANDARD OIL DECISIONS 

What is shown by the foregoing discussion to have 
been an erroneous construction of the statute by the 
court, affected its final judgment and led to the adoption 
of a method for executing it which, instead of carrying 
out in practice the purpose and intent of the legislation, 
thwarted and defeated it. So that, if the substantive 
part of the statute requires amendment, the remedial part 
also requires it. (For discussion of the last mentioned 
phase of the subject, see Chapter XIV.) 



167 



CHAPTER IX 

SCHEME FOR REACHING MONOPOLIES 
THROUGH AMENDMENT OF PATENT LAWS 

We cannot shape our legislation in conformity to the 
theories of paternalistic governments. Therefore argu- 
ments drawn from experiments which are being tried 
in Germany are irrelevant. The controlling spirit of 
our institutions is that of individual freedom. That 
should be interfered with as little as possible and only 
where necessary for protection from injustice and op- 
pression. When imder the free action of those engaged 
in establishing and building up commercial and indus- 
trial enterprises, systems and methods have been adopted 
whereby the whole country has prospered, our law- 
makers should, before radically changing them, consider 
the whole subject with the greatest care and make no 
change except when convinced that the general welfare 
will be considerably promoted thereby. When so con- 
vinced there should be no unnecessary delay. 

All of which is preliminary to a discussion — and crit- 
icism, if you please — of the bill reported to the National 
House of Representatives on the 8th day of August, 
1912, from the Committee on Patents and known as the 
Oldfield Bill. While a few of its provisions are meri- 
torious, most of them are vicious and destructive, or 
would be if not unconstitutional, and in any event mis- 
chievous. No one who studies the whole business situa- 
tion can conscientiously deny that legislation is needed. 

i68 



SCHEME FOR REACHING MONOPOLIES 

The patent laws should be amended irf some particulars 
and the sections governing administration require re- 
vision. 

The Oldfield Bill contains numerous provisions amend- 
atory of procedure which had been approved and recom- 
mended by the Commissioner of Patents and not objected 
to b}^ any of the numerous patent lawyers and others 
who appeared before the Committee in the brief period 
allotted to hearings. The hearing was in fact limited 
to Sections 17 and 32, amendatory of Sections 4884 
and 4899 of the patent laws respectively. None of the 
objections urged against these provisions prevailed, and 
with slight modifications they are embodied in the bill 
which was reported. The reported bill embodies all the 
features objected to at the hearing and several sections 
containing new matters not found in the bill before the 
Committee at the hearings. There was never any dis- 
cussion of these new provisions except such as might 
have taken place informally between the members of 
the Sub-Committee on the eve of making a report to 
the House. 

It is very difficult to discuss the bill in entirely inof- 
fensive terms. It is not necessary, however, to offend 
the proprieties by impugning the motives of any one 
responsible for its preparation and promulgation ; never- 
theless, it is not difficult to find reasons for condemning 
it as a most absurd, ill-considered and dangerous legis- 
lative proposal. 

Speaking generally, it embodies an indirect attempt 
to nullify the feature of the decisions in the Standard 
Oil and Tobacco Company cases, making the prohibitions 
of the Anti-Trust Act applicable only to such restraints 
as are undue or unreasonable. If the bill did this com- 
prehensively, directly and completely, it would not be 

169 



SCHEME FOR REACHING MONOPOLIES 

objectionable for that reason alone. But its proponents 
appear to have had reasons for discriminating, and to 
have desired that as to some particular industrial, com- 
mercial or financial interests, not clearly disclosed in 
the bill or otherwise, the modification made by the 
Court of its prior decisions should remain in force. For 
instance, in the field left untouched by the specifications, 
are all agreements between railroads fixing fares and 
rates and between merchants and manufacturers fixing 
prices. The first part of Section 5 recognizes, by clear 
and necessary implication, the rule of reasonableness as 
an ingredient of the Anti-trust Act in certain cases and 
by the lettered specifications deprives litigants of its 
benefits ; but the traffic and price agreements are not 
mentioned. It scarcely requires a special legal training 
to see the evil effect of such a change. Heretofore, 
even at the common law, the rule of reasonableness was 
held inapplicable where public service agencies were in- 
volved. 

The drastic Hmitations upon buying and selling, leas- 
ing, renting and possession and use, prices and methods 
of doing business, address themselves peculiarly to man- 
ufacturers and merchants. If the bill were enacted and 
put in force, it would shortly cause more distress and 
bankruptcy than a failure of crops, or a fifty per cent, 
reduction in the volume of currency. If any one of a 
half dozen of its provisions were alone enacted, a large 
number of legitimate and helpful enterprises would have 
to close shop and go out of business, without any re- 
sulting benefit to offset the losses. It would disjoint 
any disintegrate the business of the country more than 
the most unequal and discriminating tariff or transpor- 
tation adjustment conceivable. It would prove especially 
disastrous to merchants and manufacturers of limited 

170 



SCHEME FOR REACHING MONOPOLIES 

resources, but those able to command large capital and 
credit could take and hold the trade. It would deprive 
inventors of all incentive for obtaining patents upon 
their inventions by forbidding the fixing of prices by 
them or by their licensees or assignees. In other words, 
it would deprive them of the only means of enjoying 
the exclusive right which is the main purpose of a patent. 
The large concerns able to bear the expense of reaching 
the consumers throughout the country would be the 
only purchasers of patent rights upon their own terms, 
and these would have to sell at a uniform fixed price 
regardless of differences in cost of reaching consumers. 
And this increased cost of doing business would raise 
prices to consumers. Such would be the inevitable re- 
sult, though there might be, at first, general demoraliza- 
tion of prices, wasteful competition and numerous 
failures. 

Patent and trust legislation lie in two separate and 
distinct fields. With respect to the first, the policy of 
the Government is, and has ever been, the granting and 
protection of monopolies, while as to the other its policy 
has been to limit and restrain monopolies. An attempt 
to amend the statutes on the one subject under guise of 
amending the law, having the other as its subject matter, 
is far fetched, and incongruous. Though a case is easily 
conceivable of a patent right being used as one of the 
factors or instruments in a trust contract or combination 
restrictive of interstate commerce, yet that would not 
necessarily or usually involve any question of patent law 
at all. True, the court might be called upon to determine 
whether the monopoly privilege of the patent had been 
properly exercised, or perverted and abused, but that 
would not change the character of the case as one arising 
under the Anti-trust Act. On the other hand it would be 

171 



SCHEME FOR REACHING MONOPOLIES 

almost impossible for the Anti-trust Act to become 
involved in patent litigation. This results from the in- 
herently differing subject matter. 

An erroneous view prevails almost universally with 
respect to the real nature of patents as property. While 
it is correct to say that the granting of letters patent 
on an invention confers a monopolistic right, it is no 
more correct and means no more than the issuance of a 
patent to a quarter section of land. The only difference 
between the owner of the land and his property and 
the owner of the letters patent and the property thereby 
acquired is in the method of enjoyment and protection 
in the exclusive possession and use. The land owner 
may construct a fence or a hedge around his land and 
exclude all others from its possession and use; and 
if necessary to protect his possession from trespassers, 
he may have the same injunctive remedy that is available 
to the patentee, though he would usually have to seek 
it in a State court. 

So we see that the term "monopoly," when used in 
connection with a patent, conveys no distinctive meaning. 
Ownership of tangible property is an ancient institu- 
tion ; ownership of a patent right is an institution origin- 
ating in the constitution, the right resting upon consti- 
tutional law and the property itself being intangible. 
Ownership of a horse or an automobile is acquired as a 
result of labor, mental or physical, or both; ownership 
of a patent is acquired in exactly the same way. When 
we debate the question of whether or not the exclusive 
right of the patent owner shall be protected, the issue 
is no more one of monopoly and anti-monopoly than 
if it were one relating to the protection of any other 
property right. Whatever is necessary, considering the 
peculiar nature of the case, to secure to the owner the 

172 



SCHEME FOR REACHING MONOPOLIES 

exclusive enjoyment of his patent is as just, proper and 
legitimate as in the case of any other property, nor are 
the true merits of the proposition affected by the lax 
application of the term "monopoly." Especially are 
these observations pertinent and relevant in view of the 
decision of the Supreme Court in the Bath Tub Case 
(November 18, 1912) in effect that, where a combination 
within the terms of the Anti-trust Act is shown, and 
patent rights have been used as integers in its formation, 
the legally monopolistic character of the patent ownership 
is of no importance. Herein we have further proof of 
the fallacy of specifically bringing the patent question into 
the trust question, or vice versa, in legislation. Patent 
property no more enjoys exemption in dealing with actual 
restraints and combinations than any other species of 
property ; and yet all are equally and alike within consti- 
tutional guarantees. 

All the questions that are really in litigation in a case 
presented either civilly or criminally under the Anti- 
trust Act are questions of personal right and personal 
freedom, while every patent case involves property rights 
exclusively. The Anti-trust Act is broader in its scope 
than the entire body of patent laws. And yet, in no case 
under the former, would the patent law have to be con- 
sidered at all, but only the question of how that species 
of property designated as a patent, admitted or shown to 
exist had been used — always and invariably a question of 
fact. It never could be necessary in any bill intelligently 
drawn to protect commerce from restraint and monopoly 
to even use the word "patent." It would be difficult, 
probably impossible, to draw a bill specifying patents 
alone, which if passed would not be held inapplicable to 
any other species of property. 

The bill seemed to embody every conceivable element 



SCHEME FOR REACHING MONOPOLIES 

of destruction to, and dissolution of, the business of the 
country based on patents, amounting annually, it is said, 
to over $25,000,000,000. If it had been reported and 
passed with substantially its original provisions, it would 
have placed the owner of a patent or patented article in 
a much worse plight with respect to his property therein 
than the owner of a load of hay, a horse or even a dog. 
The Committee allowed public hearings on the bill from 
time to time, running through two months, but the hear- 
ings were expressly limited to Sections 17 and 32 relating 
to compulsory licensing and license restrictions. No one 
who examines the record can doubt that a majority of 
the Committee were impressed with the objections made 
and arguments presented to support them, nor is it a vio- 
lation of any confidence to state that the bill reported had 
the support of only a small minority of the Committee. 
Very few of the provisions of the original are found in 
the substitute bill, and even these are in a greatly modified 
form. Sections 17 and 32 of the substituted bill are 
still strenuously opposed by the patent interests affected 
by them, but their prejudicial effect is slight as compared 
to what would have resulted from the operation of these 
sections unchanged. The balance of the bill comprises 
twelve pages and is the Lenroot Bill itensified with re- 
spect to its malignity and purpose as applied to patent 
property and to no other kind of property. 



174 



CHAPTER X 

LEGISLATIVE PROPOSALS OF MR. LENROOT. 

There is a sphere of social duty wherein the law maker 
can only lay down the most general rules. The making 
of what we may properly term the minor rules must be 
left to the courts in the cases coming before them. 
Within such legislative spheres the distinctions between 
what had best be prohibited, in view of the public inter- 
est, are indistinct at first, and it is sometimes many 
years before enough precedents are established to enable 
the members of the bar to intelligently advise their clients 
as to the legal consequences of a given course of con- 
duct with reference to a given statute. Such is the situa- 
tion with reference to the Anti-trust Act. If it be true that 
much inconvenience and painful uncertainty must result 
from a failure to make the statute more specific and to de- 
fine more in detail the acts forbidden and conduct con- 
demned by it, that is unfortunate, but it is the inevitable 
condition arising from the nature of the case. Many 
schemes and expedients for amendment have been pro- 
posed, some of them by excellent legal talent ; but when 
the proponents have undertaken to formulate legislation 
embodying their views, their bills have been found im- 
practicable or unconstitutional. The Lenroot Bill is pe- 
culiarly and conspicuously amenable to both these objec- 
tions. After so complicated a measure as the Lenroot Bill 
has been printed, the practical men of affairs and the de- 
fenders of constitutional rights take it up and before they 

175 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

are through dissecting and criticizing, the draftsman of 
such a bill is more than willing that his authorship, of 
which he had at first been very proud, shall be forgotten 
as quickly as at first acknowledged and boasted of. 

But denunciation of monopoly is at present the vogue 
of the times and the fad of psuedo statesmanship, and it 
would be no use to attempt its defense. Few words in 
the language have been uttered more frequently during 
the last twenty years than "monopoly," and nearly always 
with disapprobation. And yet there is scarcely another 
word of common use the meaning of which is less under- 
stood. Ninety-nine persons in a hundred understand 
the term to have a narrow and restricted meaning. And 
yet our whole social and economic system is based on 
monopoly. Not a human being can be found on the 
earth who is not a monopolist to some extent. Even 
lunatics and children monopolize all such personal rights 
as they are permitted to exercise. And the owner of a 
right granted by government, for instance a patent, can- 
not be considered more exclusive than that of a babe to 
its maternal nourishment, or of a lunatic to the clothes 
on his back or food in possession. Nor is the title of 
either of these more exclusive than that of any other 
absolute owner of property. When we enter the domain 
of personal rights we are still more impressed with their 
exdusiveness. The right to use one's own name, to move 
about freely, to make contracts, in fact, all those rights 
which appertain to the pursuit of happiness are personal 
and exclusive ; in other words, they are monopolistic. 

Monopoly is a relative term and cannot be defined 
with such accuracy or definiteness that the definition 
would be a valuable guide to legislation. There have 
been many expositions of monopoly and attempts to draw 
lines where a business ceases to be legitimate and be- 

176 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

comes illegitimate, or ceases to be competitive and 
becomes monopolistic under such statutes as the Anti- 
Trust Act; but these have not been successful attempts 
to define monopoly. 

If we were back in England under the Elizabethan 
regime where there were no very noted instances of "big 
business" resulting from mere development and con- 
centration we would have no trouble with the definition. 
But to-day it is otherwise. We have in these days very 
few, if any, mere monopolies which are completely and 
securely coextensive with the nation, such as were cre- 
ated by royal grants in those early days. And yet most 
people realize that we have in our midst corporate insti- 
tutions possessing more power in the fields of produc- 
tion and trade than is consistent with the welfare and 
safety of the pubHc. Now, why is it that when we begin 
to talk about monopoHes certain great estabHshments, 
with hundreds of milHons of capital, but controlling 
perhaps fifty per cent, or less of the business, immediately 
come to mind, and others controlling the entire output of 
particular specialties are not mentioned or even thought 
of? It is simply because not having any definite legal 
or other conception of monopoly, we confound it with 
the power, inclusive and exclusive, possessed by "big 
business." 

It is a subject upon which we have vast illumination 
but as to which we are almost destitute of steady light. 
We may read the expositions found in court reports, the 
articles in magazines, and the hearings before House and 
Senate Committees, yet the question of what is repre- 
hensible monopoly and what are its evils against which 
legislation should be directed remains unanswered. But 
upon analyzing pubHc sentiment and political utterances 
we are able to see that the specific thing complained of is 

177 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

the power exerted by large and overgrown enterprises. 
And yet, a statement often heard is to the effect that 
the economies of co-operation and consolidation are not 
to be lost sight of, and that no fault can be found with 
mere bigness. 

Let's take the words of Justice McKenna in National 
Cotton Oil Company v. Texas (197 U. S., 128-129) : 

It is commonplace to say that it is the purpose, and indeed 
duty, of government, to get all it can of good out of the activities 
of men, and limit or forbid them when they become or tend to 
evil. Of course, what is evil may not be always clear ; but to 
be able to dispute the policy of a law is not to establish 
its invalidity. It is certainly the conception of a large body 
of public opinion that the control of prices through combinations 
tends to restraint of trade and to monopoly, and is evil. The 
foundations of the belief we are not called upon to discuss, 
nor does our purpose require us to distinguish between the kinds 
of combinations or the degrees of monopoly. It is enough to 
say that the idea of monopoly is not now confined to a grant 
of privileges. It is understood to include a "condition produced 
by the acts of mere individuals." Its dominant thought now is, 
to quote another "the notion of exclusiveness or utiny" ; in other 
words, the suppression of competition by the unification of in- 
terest or management, or it may be through agreement and con- 
cert of action. And the purpose is so definitely the control of 
prices that monopoly has been defined to be "unified tactics with 
regard to prices." It is the power to control prices which makes 
the inducement of combinations and their profit. It is such 
power that makes it the concern of the law to prohibit or limit 
them. 

That is as far as the Supreme Court has gone in defin- 
ing monopoly; and yet instance after instance could be 
cited of corporations engaged extensively in interstate 
commerce absolutely controlling the prices of particular 
articles, but which clearly could not be reached under 
the Anti-trust Act, or any other statute now in force, 
and whose interstate commercial activities are nowhere 
condemned. Would it economically make any difference 
if the same result were produced by a combination of in- 
dividuals or corporations rather than by the accumulated 
power and prestige of a single firm or corporation ? And 

178 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

yet, while the former would be exempt, the latter would 
be within the inhibition of the Anti-trust Act. 

A certain great New York corporation, formerly a 
great firm could be named, engaged in the wholesale and 
jobbing dry goods trade. It has exclusive options from 
year to year with the manufacturers of particular brands 
of cottons, woolens and cloths, not produced by any 
other manufacturers. It controls or monopolizes if you 
please, that trade, both locally and among the States, 
fixing its own prices. Concerning it and its operations 
two questions could be asked, one of which can be read- 
ily answered; the other unanswered. First, can that 
corporation with respect to its control and operations be 
reached and dealt with as a monopoly, under the second 
section, or for restraining commerce under the first sec- 
tion of the Anti-trust Act? To this the answer is nega- 
tive, because there is a complete legal hiatus between 
the arrangement of the corporation with the manufac- 
turers and its distribution to its customers through the 
channels of interstate commerce. Second, ought a limit- 
ation to be placed upon its powers, and ought its activities 
to be checked and curtailed by Federal legislation? To 
this it might seem presumptuous to return an answer. 
The Lenroot Bill, if vaHd, would by some of the lettered 
clauses of Section 10 unquestionably put an end to that 
method of marketing the products of manufacturers, be- 
cause prohibiting and penalizing all exclusive contracts 
and managements of every kind and character. It here- 
in makes no distinction between interstate and intrastate 
trade, and in that lespect is amenable to constitutional 
objections ; but if so rewritten and changed as to apply to 
interstate commerce only, the economic argument pro and 
con would remain to be made, as well as the decision 
by Congress upon the politic and economic question. 

179 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

By legislation in proper form Congress can accomplish 
this particular purpose of the Lenroot Bill, because, as 
was said in the Knight case, "The power to regulate 
commerce is the power to prescribe the rule by which 
commerce shall be governed, and is a power independent 
of the power to suppress monopoly. But it may operate 
in repression of monopoly when that comes within the 
rules by which commerce is governed, or whenever the 
transaction is itself a monopoly of interstate commerce." 

Now in this connection it may be remarked that we 
find a distinction made in the law, as construed, where 
there is no practical or economic difference. The result 
accomplished by the corporation above referred to is 
just the same economically as if those manufacturers 
had formed a combination through a holding company 
and marketed their products through it, or had made a 
trade agreement to operate through a committee as was 
attempted in the Addystone Pipe Company case. But 
either of the latter methods would be within the prohi- 
bition of the Anti-Trust Act, while the present method 
of doing the same business is beyond the scope of the 
Act. 

But while the policy for Congress in dealing with such 
situations as that presented in the cases of such corpora- 
tions as that now under consideration is for its own 
determination it cannot be improper to present a few of 
the hackneyed objections to its being disrupted and hav- 
ing its unified system of business disintegrated by Federal 
law. If one of the manufacturers can contract in ad- 
vance to sell, up to his full capacity, the economies which 
that will enable him to practice may give him a greater 
profit at 5 per cent, advance on cost of production than 
he would realize at 10 per cent, if he must go into the 
open market for purchasers and take his chances with 

i8o 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

an uncertain and intermittent demand. Again, the pur- 
chasing corporation, in control of the supply, may realize 
a greater aggregate profit at one cent profit per unit 
of merchandise when controlling the entire trade and 
measuring its transactions in terms of millions, than at 
two cents per unit, if depending upon the exigencies of the 
market in competition with other dealers in the same spe- 
cial brands of goods and measuring its transactions in 
terms of thousands. 

How does such an arrangement affect competition? 
Nothing can be here definitely and unqualifiedly affirmed. 
We have a mixed or composite result, some of the new 
forces set in motion nullifying pre-existent activities, 
while stimulating and renewing others. All bidders for 
the products of these particular producers are barred out 
ultimately, but not primarily. Before the exclusive 
contracts are made any one is free to offer them and each 
of them better prices for their entire product than those 
accepted; and in that sense they may be said to have 
sold in a competitive market. Competition to produce 
better goods of different brands saleable at the same 
price or as good and saleable at a lower price, would 
also be stimulated. But of course the competitors of the 
big corporation may not have the adequate organization 
or be able to command the necessary capital to make 
their competition effective. 

We next give attention to the transactions between the 
distributing corporation and its customers. In addition 
to its local trade, it may deal with a thousand retail mer- 
chants through interstate commerce channels, as to 
which, in case of illegal restriction, it would violate the 
Anti-trust Act. Its exclusive contracts with them, how- 
ever, as is now well settled are not within the prohibi- 
tions of that Act. They do not destroy competition, be- 

i8i 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

cause the field is open to other wholesalers, jobbers and 
their retail patrons, handling other brands of the same 
general class of goods which may be better at the price, 
or just as good, or nearly as good. These trade agree- 
ments are often exclusive and restrictive in a certain 
sense, and the retail dealer may by their terms have the 
benefit of a discount on all purchases during a year by 
purchasing a certain agreed large amount. Each and 
every one of them creates, in a small way, a monopoly. 
Then we would have the same character of monopoly 
with each of the retail dealers patronizing the corpora- 
tion with respect to the various brands of other lines 
of dry goods handled or dealt in by it. So that, out of 
a year's business of this one establishment, we would 
have many thousands of these little monopolies, or near- 
monopolies. And the majority of the thousands of job- 
bers and wholesalers in the country are doing business 
in that way, and many manufacturers are dealing thus 
directly with the retail trade. The number of such trade 
agreements must run into the millions and tens of mil- 
lions. So that, if the provisions of this bill should be 
enacted and enforced, it would revolutionize and disin- 
tegrate the major portion of the business of the country 
as it is now carried on. We should then indeed have 
that unfair competition, the elimination of which is the 
professed purpose of this bill. We would also have dis- 
tracting fluctuations in price, deterioration of quality, 
simulation of trade marks, and general demoralization. 

But those affected by such trade agreements which we 
have thus far named only constitute a negligible percen- 
tage of persons to be considered. How does it affect the 
interests of retail buyers, the consumers? In a small 
city or town we will find a half dozen stores, each hand- 
ling exclusively a particular and distinguishable brand, 

182 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

we will say, of woolen underwear. They are all in com- 
petition with each other, each interested in selling as 
much as is possible in order to get the benefit of the dis- 
count from the wholesaler or jobber with whom he deals. 
As a matter of fact, not many purchasers at retail pay 
any attention to the brand of such goods, but look prin- 
cipally at the quality and price. So it is evident that as 
affects those whose interests should concern the law- 
maker most, there is intense and thorough competition, 
both as to price and quality. 

Therefore we see that those wishing to trade and deal 
at wholesale in such staples, rather than consumers and 
retailers, are the real complainants against the prevalent 
system. And the question arises whether it would sub- 
serve any general interest to legislate for the special ben- 
efit of a particular class of middlemen, and whether it be 
not best for the public interest that transfers from pro- 
ducers to consumers be abridged and simplified. 

The first step to bringing about ideal conditions would 
seem to be a process of weeding out superfluous traders 
and traffickers, or middlemen. They produce nothing, 
build up nothing, and cast no obligations upon the law- 
maker. There should be unrestricted competition be- 
tween consumers and producers, which includes agricul- 
turists, miners and manufacturers. Importers might 
very properly be also catalogued as producers. The only 
commercial co-operation should be in buying rather 
than in selling. Jobbers or wholesalers and distributors 
in a large way would be beneficial; and their only cus- 
tomers should be the representatives of retail purchasers 
and consumers. Transportation facilities should be 
available to all persons and to all localities on equal 
terms, with the least possible discrimination because of 
quantity, distance and labor involved in handling. And 

183 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

if such equality cannot be otherwise produced, then 
transportation should come under complete Governmen- 
tal control. 

It is that so-called business class which we here desig- 
nate as the trader or middleman who does much to keep 
up the rate of interest (dividends being the equivalent) 
and necessitates intermediate shipments and reshipments 
of articles for consumption, thereby enormously increas- 
ing the aggregate freight charge. Interest and transpor- 
tation charges are gradually and by imperceptible de- 
grees eating up the entire average margin of profit on 
invested capital in other enterprises than railroading and 
banking; and at the present rate of progression in that 
direction, the time is not far distant when those two pre- 
dominating interests will have absorbed all the solid 
wealth of the nation. In that direction and not toward 
such minute matters as uses and abuses of patent owner- 
ship, and the short cuts of manufacturers to profitable 
trade, the legislator should turn his attention. This is 
a diversion in a sense, but the whole question is on the 
borderland of a very general discussion. 

Some very talented individuals talk about regulating 
competition just as they would discuss the placing of lim- 
itation upon the sale of opium or some social vice. Com- 
petition is not merely an incident of all business, but an 
inseparable attendant. There are of course dishonest 
practices among those striving each for his share of trade 
which is not infinite. Never while the world stands will 
there be enough business, or, for that matter, enough re- 
munerable employment to satisfy all. On the other 
hand, no trade monopoly is, or ever can be, so perfect or 
powerful as to be entirely free from competition. And 
the wrongs of competition can be no more prevented by 

184 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

acts of Congress than can infractions of the golden 
rule. 

It cannot be doubted that some phases of competition 
are so closely connected with commerce that Congress 
might specifically prohibit and penalize them; but only 
the competition pertaining to interstate commerce. A 
great difficulty arises, however, when that form of regu- 
lation is attempted. While it is feasible to separate in- 
terstate trade from that which is intrastate, it is not so 
with competition. It is not strictly speaking merely the 
life of trade but rather its inseparable concomitant. It 
is trade's universal element, just as the presence of the 
ocean was the pre-existent condition for navigation. 
The Government can regulate navigation, but it cannot 
regulate the tides, currents, waves, and winds of the 
ocean. It can, to some extent, regulate interstate com- 
merce, but it cannot regulate the infinitely varied phases 
of competition. Some of the acts assailed by the Len- 
root Bill as unfair competition can be prohibited and 
penalized in the exercise of a police power belonging to 
the States, and in some instances specific conduct might 
be punished by the federal government, not necessarily 
because they belong to or constitute competition, but be- 
cause they are otherwise, or independently, obstacles to 
the free flow of interstate commerce. The Elkins Act, 
now part of the Act to Regulate Commerce, forbade and 
penalized rebates and concessions by carriers, not be- 
cause these were what might be termed instances of un- 
fair competition between carriers, but because they con- 
stituted wrongs to shippers and the public, so closely con- 
nected with interstate commerce as to warrant their 
being treated as part thereof. 

A vast amount of time has been wasted in speech, 
and space consumed in print, differentiating, or at- 

185 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

tempting to differentiate, between restraint of trade 
and restraint of competition. The two expressions 
are not synonymous ; that is to say, they are not equal- 
ly comprehensive, but lie in different planes. A re- 
striction of trade may result in restraint of competi- 
tion, but that is by no means an invariable result. A 
prohibitory tariff would restrain trade and increase 
competition within the nation adopting the prohibi- 
tion, and the creation of a monopoly of interstate com- 
merce may cause new competition to spring up for 
supplying local demand in many places. 

Again, what is called restraint of competition 
would be more properly described as destruction of 
competition, which may result from many causes 
other than restraint. And while the creation of an 
interstate monopoly may increase local competition, it 
may, in turn, destroy it without diminishing the ag- 
gregate trade. In no proper sense can a monopoly 
of trade be said to restrain competition. The utmost 
that it ever does is to destroy it. Fire, storms, flood, 
insolvency, changes in transportation rates and facili- 
ties; these are a few of many destroyers of competi- 
tion. 

Just as the social welfare of the people is of great- 
est importance in the legislation to regulate immigra- 
tion, so is the preservation of competition of primary 
importance in regulations of commerce, but the legis- 
lation must necessarily be limited to foreign migra- 
tion in the one case, and to restraints and interferences 
with commerce in the other. As well might we at- 
tempt to cover all the social affairs of the people by 
Congressional enactment, as attempt to so regulate 
competition. It is a universal force, having as many 
forms and phases as vegetation or animate life. When 

1 86 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

restraint has been prevented and monopoly removed, 
Congress has done all it can in the form of an anti- 
trust act. 

The "acts, conduct, methods," etc., designated in 
Sections 10 and 11 of the Lenroot Bill, must be 
reached, if at all, by legislation in some other form. 
Nearly or quite all the specifications fall short of be- 
ing any "contract combination in the form of trust or 
otherwise or conspiracy," these being results often 
contributed to in part by "acts, conduct," etc. Some 
of them, for instance, the acquisition of 40 per cent, or 
any other large proportion of a business, might or 
might not be a factor in the acquisition of a partial 
monopoly, involving no restraint, or it might be a re- 
sult of fair and successful competition. But to enact 
that the fact of such a degree of control creates even 
a rebutable presumption of restraint of trade, which 
is something different from the other two results 
would be to make a defendant in some cases a suft'erer 
from mere guesswork. 

And before any act should be passed forbidding and 
punishing the acts or conduct specified in the Lenroot 
Bill, if it can first be shown that Congress has juris- 
diction to so legislate, inquiry should be directed to 
the question of whether they or any of them are inher- 
ently vicious, and whether the public interest will be 
best served by governmental fiat. But in any event, 
before a code of business morality is adopted, it should 
also be considered whether it can be enforced. It 
must be borne in mind that a self-assertive, self-gov- 
erning people will often insist upon doing business 
in ways that cannot be morally justified until other 
conditions are so changed that they can adopt better 
and fairer methods. Nor should we lose sight of the 

187 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

real function of our form of government, which is to 
serve the people as they prefer to be served, and not 
as philosophers and philanthropists think they should 
be served. Of course this principle or policy of gov- 
ernment should not stand in the way of any legislation 
to put an end to an obvious evil, the remedy for which 
is within congressional power. But this legislation 
is proposed by way of amendment or supplementation 
of the Anti-trust Act, a law aimed at contracts and 
combinations in restraint of trade or tending to mon- 
opoly. And before its enactment is seriously consid- 
ered, inquiry should be made as to whether the things 
forbidden are calculated to directly and substantially 
restrain, or even to diminish trade, because if they do 
not, then its proponents are sailing under false colors 
and attempting to avail themselves of the popular pro- 
test against restraints and monopolies for the attain- 
ment of an object not in the minds of the protesting 
public. That this remark is not impertinent is appar- 
ent from the fact that the provisions of the bill are not 
limited to interstate commerce at all. 

The Anti-trust Act is an abridgment of monopoly, 
such an abridgment, however, as was found to be neces- 
sary. Or to otherwise express it, it is a limitation 
placed upon freedom which prevents abuses of free- 
dom, and promotes a more general freedom. There 
is this other pecuHarity about it; the Anti-trust Act 
pertains primarily and solely to personal rights. 
Though property rights may be affected very serious- 
ly in its enforcement, yet the regulation of ownership 
of property — that being synonymous with the right of 
property — -was not the moving cause for its passage. 
It is true that a contract is property, and that the sta- 
tute begins with the words, "Every contract." But 

i88 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

the entire sentence, "Every contract, combination in 
the form of trust or otherwise, or conspiracy, in re- 
straint of trade or commerce among the several States, 
or with foreign nations, is hereby declared to be ille- 
gal," could have been omitted without loss of efficacy. 
All' that is really important in the Act are the remedial 
and penal clauses. Of course anything made criminal 
is prohibited, and illegahzed without the further use 
of language. That the statute is aimed at personal 
conduct is shown by its form and words. "Every per- 
son who shall," etc., do so and so; not "every person 
found to be the owner," etc. 

These refinements and distinctions, though seem- 
ingly very technical, have a direct bearing upon the 
matter under consideration. In trying to reach the 
patent law by amendment of the Anti-trust Act, or 
vice versa, the proponents of the Lenroot Bill display 
very imperfect knowledge of the whole subject and of 
the national policy behind both statutes, In the enact- 
ment of patent laws the government provides for the 
creation of artificial monopolies, finding direct and ex- 
press sanction therefor in the Constitution; in the 
enactment of the Anti-trust statute the Government 
sought to curb abuses of the constitutional right of 
contract and of association, in so far as such abuses 
relate to interstate commerce. But these rights may 
be abused by the owner of a patent and with respect 
to such ownership, as effectively as by the owners of 
other kinds of property, as was recently decided in the 
Bath Tub case (Standard Sanitary, etc., Co. vs. 
United States, decided November 18, 1912), showing 
that no amendment of the Anti-trust Act is needed in 
order to bring patentees within its provisions. 

No legislation is needed to establish the line of sep- 

189 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

aration between the rights of patentees under patent 
laws and those of the pubHc under the Anti-trust Act. 
It has been enunciated time and again by the courts. 
They have held that such contracts as those in the 
button- fastener case and the mimeograph case do not 
constitute invasions of that freedom protected by the 
Anti-trust Act, but that such a combination based 
upon patent rights as that presented in the Bath Tub 
case does constitute such invasion. 

In reading the Lenroot Bill, one is unavoidably im- 
pressed with the fact that its draftsman was endeavor- 
ing to utilize the agitation for amendment of the Anti- 
trust Act for the accomplishment of several distinct 
ulterior purposes, having no connection with, or rela- 
tion to, the sole purpose of that act, as above ex- 
plained. But this phase of the matter will be referred 
to more specifically hereinafter. 

The bill does not expressly add so much as a single 
word to, or change a word of, the Anti-trust Act. 
Persistently it has been stated before committees that 
the proponents do not contemplate any change in the 
existing law, but only to supplement it and render it 
more effective. But in fact the bill has the legal effect 
to recognize, adopt and incorporate before the word 
restraint wherever it occurs in the Act the word "un- 
reasonable" and then seeks to partially nullify that in- 
terpolation by indirection and circumlocution. Prob- 
ably not a single member of Congress would deem it 
advisable to pass legislation which, standing alone, 
would have that general effect. This is probably a 
safe statement, regardless of individual views of the 
soundness or unsoundness of the doctrine of the Stand- 
ard Oil and Tobacco Company cases. 

But if that statute or any ought ever to be amended 

190 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

in any such way, why should not the wonderful inven 
tion of presumptions, conclusive and rebuttable, cover 
the whole field of violation? Why enumerate just 
those acts which the draftsman opines are reprehen- 
sible, and leave the public and private parties other- 
wise unprotected by the unique device? 

The bill cannot be compared to anything in our 
legislative literature, or history. Two sections which 
it would add to the Anti-trust Act would be Sections 
9 and 10 of the present statute. They would not be 
supplementary, but radically amendatory and emascu- 
latory legislation, though really aiming at objects for- 
eign to those aimed at in the Anti-trust Act. Sections 
9 and 10, which the bill proposes to add to the Anti- 
trust Act, read as follows: 

Sec. 9 That whenever in any suit or proceeding, civil or 
criminal, brought under or involving the provisions of this Act 
it shall appear that any contract, combination in the form of 
trust or otherwise, or conspiracy was entered into, existed or 
exists which was or is in any respect or to any extent in restraint 
of trade or commerce among the several States or with foreign 
nations, the burden of proof to establish the reasonableness of 
such restraint shall be upon the party who contends that said 
restraint of trade is reasonable. 

Sec. 10. That whenever in any suit or proceeding, civil or 
criminal, brought under or involving the provisions of this Act 
it shall appear that any contract, combination in the form of 
trust or otherwise, or conspiracy was entered into, existed, or 
exists which was or is in any respect or to any extent in restraint 
of trade or commerce among the several States or with foreign 
nations, such restraint shall be conclusively deemed to have been, 
or to be, unreasonable and in violation of the provisions of this 
Act as to any party thereto — 

A. Who, in carrying on any business to which such contract, 
combination, or conspiracy relates or in connection therewith — ■ 
(a) As the vendor, lessor, licensor, or bailor of any article, 
attempts to restrain or prevent in any manner, either directly 
or indirectly, any vendee, lessee, licensee or bailee from pur- 
chasing, leasing, licensing or obtaining such article, or any other 
article from some other person, or using such article or any other 
article obtained from some other person whether such attempt 
(first) be made by an agreement or provision, express or implied, 
against such purchase, lease, license or use; or (second) be mdae 

191 



LEGISLATIVE PROPOSALS OF MR. LENROOT 



by a condition in the sale, lease, license or bailment against such 
purchase, lease, license or use ; or (third) be made by imposing 
any restriction upon the use of the article sold, leased, licensed or 
bailed; or (fourth) be made by making in the price, rental or li- 
cense any discrimination based upon whether the vendee, lessee, 
licensee or bailee purchases, hires or becomes a licensee of or uses 
any article made, sold, licensed, leased, or furnished by some 
other person; or (fifth) be made in any other manner except the 
ordinary solicitation of trade. 

(b) As the vendor, lessor, licensor, or bailor of any article, 
attempts to prevent or restrain competition by making in the 
price, rental, or royalty, or other terms of any such sale, lease, 
license, or bailment any discrimination based upon whether the 
vendee, lessee, licensee, or bailee purchases, leases, licenses, or 
takes on bailment from him articles of a particular quantity 
of aggregate price. 

(c) As the vendor, lessor, licensor, or bailor of any article, 
attempts to prevent or restrain competition either by refusing 
to supply to any other person requesting the same any article 
sold, leased, licensed, bailed, or otherwise dealt in or furnished 
by him, or by consenting to supply the same, only upon terms or 
conditions in some respects less favorable than are accorded to 
any other person. 

(d) As the vendor, lessor, licensor, or bailor of any article, 
attempts to prevent or restrain competition by supplying or 
offering to supply to any person or persons doing business in any 
particular territory articles sold, leased, licensed, bailed, or other- 
wise dealt in or furnished by him, upon terms or conditions in 
any respect more favorable than are accorded by him to his other 
customers. 

(e) As the vendor, lessor, licensor, or bailor of any article,, 
attempts to restrain or prevent competition by making any con- 
tract or arrangement under which he shall not sell, lease, or 
license any article in which he deals to certain persons or class 
of persons, or to those doing business within certain districts or 
territory. 

(f) If a natural person, does business directly or indirectly 
under any name other than his own or that of a partnership of 
which he is a member ; or if a corporation does business under 
any name other than its own corporate name ; or if there be any 
concealment or misrepresentation as to the ownership or control 
of such business ; or if there be any misrepresentation as to the 
identity of the manufacturer, producer, vendor, or licensor of any 
article sold or leased. 

(g) As the vendor, lessor, licensor, or bailor of any article, 
attempts to prevent or destroy competition by supplying or offer- 
ing to supply such articles without charge or at prices at or below 
the cost of production and distribution. 

(h) As the vendor, lessor, licensor, or bailor of any article, 
spies upon the business of any competitor or secures information 
concerning his busines,s either through bribery of an agent or 

192 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

employee of such competitor or of any State or Federal official, 
or by any illegal means whatsoever secures information concern- 
ing the competitive business. ^ ' 

(i) As the vendor, lessor, licensor, or bailor of any article, 
attempts to prevent or restrain competition by the use of any 
unfair or oppressive methods of competition ; or 

B. Who has been sentenced, or who controls or is controlled 
by or is a member of or forms a part of any corporation or 
association which has been sentenced, under the Act to regulate 
commerce, approved February fourth, eighteen hundred and 
eighty-seven,or any amendment therof, for any act or thing re- 
lating to any trade or business affected by such restraint done 
or occuring after this Act goes into effect. 

The foregoing enumeration of acts, conduct, methods and de- 
vices, which it is herein declared shall each conclusively be 
deemed unreasonable, does not include, and shall not be con- 
strued to exclude or as intended to exclude, any other acts, 
conduct, methods or devices which are or may be unreasonable. 

The provision of clause (a) of this section shall not apply 
to any case where the vendor, lessor, licensor or bailor of any 
machine, tool, implement, or appliance protected by lawful patent 
rights vested in such vendor, lessor, licensor or bailor requires 
the purchaser, lessee, licensee, or bailee to purchase or hire from 
him component or constituent parts of such machine, tool, im- 
plement, or appliance which such vendee, lecensee or bailee may 
thereafter acquire during the continuance of such patent right, 
nor shall any of the provisions of this section apply to the mere 
appointment of sole agents to sell, lease, license, bail or furnish 
any article. 

To the first section of the Lenroot Bill, adding Sec- 
tion 9 to the Anti-trust Act, and to all such bills, it 
should be remarked that it is a somewhat adroit at- 
tempt to incorporate into the law the element of reas- 
onableness, and at the same time offset it by shifting 
the burden of proof. But if the new doctrine found in 
the Standard Oil and Tobacco Company cases is to be 
dealt with at all, it is obvious that the only way for 
Congress to deal with it is to eliminate the new ele- 
ment by direct amendment of sections one and three 
of the Anti-trust Act. It is a strange notion, widely 
prevalent among the legal profession, and even more 
so among Senators and Representatives, that a direct 
and open challenge of the soundness of these decisions 

193 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

is to be avoided, and that the situation thereby created 
must be met in some roundabout way, for instance, by 
supplementary legislation. 

This new Section 9 would utterly fail to accomplish 
its main purpose, which though ostensibly a shifting 
of the burden of proof, yet goes much further. It goes 
to an extreme which would eliminate the distinction 
between direct and indirect restraint, and draw into 
the Federal courts all the business of the country 
connected, however remotely, with interstate com- 
merce. In practical effect it would nullify the whole 
act by rendering its enforcement impossible. The 
courts have pointed this out time and again in drawing 
the line between direct restraint and indirect restraint, 
and confining the inhibitions of the act to that which 
is direct. There are not enough courts in the country, 
State and Federal, to attend to indirect restraints, even 
if they had nothing else to do. In short, these two seri- 
ous objections lie against the proposed new Section 9. 
1. It admits into the statute, by express provision, the 
element of reasonableness. 2. It would eliminate 
the distinction between direct and indirect restraint, 
that is, if Congress would have the power to do so. 
But it has no such power, as is shown in Kidd v. Pear- 
son and other cases. It is a constitutional question. 
And it should not be overlooked that these provisions 
are made expressly applicable to criminal, as well as 
civil actions. 

If one did not appreciate the laudable and patriotic 
motives of the authors of, and sponsors for, this bill, 
he might reasonably suspect that the clever schemes 
of those who contend that monopoly should not be 
suppressed, but preserved and regulated, underlay 
Section 9. But it will be sufficient to point out the 

194 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

sinister, serious and far-reaching effect upon the reme- 
dies and upon the interests of the public, of adding 
that section to the statute. 

A careful reading of the opinions in the Standard 
Oil and Tobacco cases, discloses one or two things al- 
ready noted, but here having such connection as to re- 
quire repetition. There are no contracts, properly so 
designated, now covered by the Anti-trust Act as re- 
cently construed. Contracts in reasonable restraint of 
trade at the common law could be enforced. All other 
so-called contracts in restraint of trade, being illegal, 
were combinations. These were so far illegal as to be 
indictable by the common law. Therefore, the court in 
these cases did not mean to insert the word "unreason- 
able," equivalent to illegal, into every concerted ar- 
rangement in restraint of trade. Nevertheless, that 
is what they did. The court expressed no intention 
to change the common law status of combinations and 
conspiracies. 

Contracts wherein the restraint is only reason- 
able, having been by the court eliminated from the' 
Anti-trust Act, the term "contract," as used in Section 
9 of this bill, may be treated as surplusage. What then 
would be the net result of its adoption? It would be 
to inject the term "unreasonable" into the statute, 
where it belongs, only by inference from and construc- 
tion of these decisions. 

Much more clearly does this effect of the bill appear 
when, bearing in mind what has just been said, we 
glance forward to the clause near the end of Section 
10, providing that "The foregoing enumeration of acts, 
conduct, methods and devices, which it is herein de- 
clared shall each conclusively be deemed unreasonable, 
does not include and shall not be construed to exclude 

195 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

or as intended to exclude, any other acts, conduct, 
methods or devices, which are or may be unreason- 
able." This would place it beyond peradventure that 
the conclusive presumption is not to apply generally, 
but only in the specified cases, leaving the provision of 
Section 9 operative as the general rule. True, it throws 
on trusts and other forms of combination a rebuttable 
presumption, but that takes the place of a positive 
statutory condemnation, equivalent to a conclusive 
presumption of unreasonableness, assuming of course 
that these decisions are not the last word on the sub- 
ject. 

Let's scrutinize the provision above quoted, lest its 
effect be hereafter made a subject for controversy. It 
"does not include." That we see; but this prevents 
any possibility of its being otherwise construed. It 
"shall not be construed to exclude or as intended to 
exclude," what? "Any other acts, conduct, methods or 
devices which are or may be reasonable." That leaves 
the question of unreasonableness to be considered in 
the case of any other acts, conduct, etc. It excludes 
cases arising or sought to be based on acts, conduct, 
etc., not specified under the operation of the provision 
of Section 9. And a reference to the hearing on the bill 
before the Judiciary Committee will disclose an admis- 
sion that this is the proper construction. 

Now, what would be the effect of its adoption upon 
the practice and procedure? In a case brought, we will 
say, against the Smith-Jones corporation, alleging it 
to be a combination to restrain interstate commerce in 
iron and steel, the Government proves the coml)ination 
and its operations, showing restraint. This proof fixes 
and colors that restraint as illegal It is illegal because 
produced by a criminal act, to wit: The activities of 

196 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

a combination condemned by the law. There is no 
room or place for any element of unreasonableness to 
qualify its illegality, unless found in the oil and to- 
bacco decisions; but by Section 9, after the Govern- 
ment has rested its case, the defendant would be ex- 
pressly authorized to attack it with a mass of argu- 
mentive and speculative evidence, tending to show 
that, after all, what the defendants have done was in 
keeping with the modern trend of business and indus- 
try, that its methods were merely the normal and usual 
way of achieving great results, and that the public has 
been well served because of efficiency and economy of 
management. In other words, the section introduces 
debatable matter in the trials of such cases, matter 
which is at present outside the issues, and would give 
the defendant an enormous advantage, which it does 
not now have. It would allow juries and courts to be 
hopelessly befogged and confused, whereas without it 
they would be free from doubt and difficulty. It would 
be as fatal to the Anti-Trust Act as if it were repealed. 
Instead of placing a real burden upon the defendant, it 
would make to him a valuable concession, and open to 
him a way of escape. 

Of course no great trust or corporation will raise 
the point of unconstitutionality against Section 9, or 
against other sections. But we may safely assume that 
the objection will be raised. And we now recur to 
tfiat question. 

Having placed this new element of reasonableness 
in the statute, it of course becomes an essential ele- 
ment of the ofifense, whether treated civilly or crimin- 
ally ; and to place upon the accused party the burden of 
proof as to that is the equivalent of placing the burden 
upon him as to the whole case, because there is really 

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LEGISLATIVE PROPOSALS OF MR. LENROOT 

no illegal restraint until there is made out a case of un- 
reasonable restraint. The effect would therefore be to 
convict in criminal cases, or apply civil remedies, 
against the party in civil cases v^ithout evidence, upon 
an essential fact in the case. The absurdity of the 
proposition appears upon a bare statement of it, in 
view of the constitutional provision that no one shall 
be deprived of life, liberty or property without due pro- 
cess of law. It is unnecessary to say that no constitu- 
tional burden of proof provision applicable to cases 
under the Anti-trust Act can be drawn. Such a pro- 
vision, however, would have to be limited to issues of 
fact. In such cases its function would seldom be seri- 
ously important. In practically every case the Govern- 
ment must produce all the essential facts before rest- 
ing; and then, of course, the question of reasonable- 
ness or unreasonableness is one of law, purely and sim- 
ply. We might make this idea even clearer by a com- 
monplace illustration. By a recent decision, we will 
say, the taking of a red apple is larceny, but the taking 
of a yellow apple is harmless. The prosecution must 
produce the apple before the court. The court on see- 
ing it must necessarily see its color. But the Lenroot 
Bill would compel the defendant to prove that the 
apple was yellow, in order to escape punishment, no 
matter how it appeared to the court. And if the prose- 
cution proved the apple was taken without proving 
its color, failing as to a material fact in the case, the 
defendant would nevertheless have to prove the lawful 
color, and in so doing, necessarily admit a taking. 

The most serious objection, however, to Section 9, 
already inferentially stated, is that it introduces the 
element of reasonableness into combinations and con- 

198 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

spiracies where there was no such element by the 
common law. 

These lengthy and involuted Sections 9 and 10 make 
upon the mind an impression which, though clear and 
definite, almost baffles expression. What they accom- 
plish in one respect, however, can be easily shown by 
illustration. Under the present Anti-trust Act, with 
the recent construction interpolating the word "un- 
reasonable" or "undue," if we bring into court a case 
like the Trans-Missouri Freight Association, or the 
Joint Traffic Association case, or any other case of a 
mere combination and agreement to fix rates or prices, 
such case would not be touched by the provisions cre- 
ating presumptions found in -Sections 10 and 11. The 
Government would no longer be free to invoke the com- 
mon law doctrine of Baltimore vs. Consolidated Gas 
Co. (130 U. S., 397), to the effect that any degree or ex- 
tent of restraint by a public service corporation is ille- 
gal, because this Section 9 is a legislative recognition of 
the doctrine of the recent decisions in all cases not 
therein enumerated and provided for. And if we take 
the Addystone Pipe case, we find that the gist of the 
charge was the agreement fixing prices which would 
remain subject to the doctrine of reasonableness. And 
there have been and will be other cases in which noth- 
ing outside the bare restrictive agreement and concert- 
ed action is shown, to all of which the doctrine of reas- 
ableness would still apply. That would be sufficient 
under any decision prior to the Standard Oil and To- 
bacco decisions; and may be sufficient again if the 
court should reverse itself, or Congress eliminates the 
word which the court has interpolated. But if Sections 
9, 10 and 11 of the Lenroot Bill be enacted, the court 
will be no longer free to modify its views, and Con- 

199 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

gress will be forestalled in any future effort to restore 
the act to its original vigor, because of vested interests 
growing up under said Sections 9, 10 and 11. The law, 
if so amended, would injure few if any of the larger 
combinations. Institutions of enormous capital, with 
strong financial backing, have no need to resort to any 
of these acts designated in the lettered sub-divisions of 
Section 10. They have no need to discriminate in any 
way. Indeed, their profits are best secured by uniform- 
ity and equality of prices, for the same reason that the 
railroads have enormously profited by the anti-pass, 
anti-rebate and anti-discrimination provisions of the 
Interstate Commerce Act. Such institutions need 
above all else normal methods of doing business, and 
their positions and interests would be still further but- 
tressed by such an enactment and the enforcement 
thereof against independent companies of such a law 
as that here proposed. 

Having shown that in certain respects the provisions 
of this section are favorable to what is known as "big 
business," we turn to a feature which overturns the 
established law and, if it be possible that they be con- 
stitutional, would inaugurate such confusion and so 
far extend its operation as to render the Anti-trust Act 
totally abortive and impracticable. At any rate, that 
would be the result within the scope of Section 10. In 
every action to which it could be held applicable, the 
first question would then be, "Does the transaction re- 
strain trade or commerce to any extent or in any de- 
gree whatever?"; and not as at present, "Does the 
transaction directly and substantially restrain trade or 
commerce?" If indirect, collateral and slight re- 
straints could be forbidden by Congress, and were for- 
bidden even co-extensively with this bill, one result 

200 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

would be the complete disorganization of all kinds of 
business as it is now done ; another result would be the 
withdrawal of a vast volume of litigation from the State 
courts into the federal courts. 

But such transactions are not constitutional sub- 
jects of congressional regulation or control. In Hop- 
kins V. United States (171 U. S .Rep., 5, 92) the court 
said : 

Many agreements suggest themselves which relate only to 
facilities furnished commerce, or else touch it only in an indirect 
way, while possibly enhancing the cost of transacting the busi- 
ness, and which at the same time we would not think of as 
agreements in restraint of interstate trade or commerce. They 
are agreements which in their effect operate in furtherance and 
in aid of commerce by providing for its facilities, conveniences, 
privileges or services, but which do not directly relate to charges 
for its transportation nor to any other form of interstate com- 
merce. To hold all such agreements void would in our judg- 
ment improperly extend the act to matters which are not of an 
interstate commercial nature. 

We have the further constitutional objection which 
was successfully urged in Adair v. LTnited States (208 
U. S., 161) and in Trade-mark Cases (100 U. S., 82), 
that it seeks to regulate both interstate and intra- 
state trade indiscriminately. In the latter case the 
court said: 

When, therefore, Congress undertakes to enact a law, which 
can only be valid as a regulation of commerce, it is reasonable 
to expect to find on the face of the law, or from its essential 
nature that it is a regulation of commerce with foreign nations 
or among the several States, or with the Indian tribes. If not 
so limited, it is in excess of the power of Congress. If its main 
purpose be to establish a regulation applicable to all trade, to 
commerce at all points, especially if it be apparent that it is 
designed to govern the commerce wholly between citizens of the 
same State, it is obviously the exercise of power not confided 
to Congress. 

Turning now to the lettered sub-divisions of Section 
10, we find that at least two constitutional objections 

201 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

lie against nearly or quite every one of them. The 
language of the section is involved and complicated, 
so that no one can say just what it means, until in the 
course of time it shall have been fully construed. But 
we must first find a vendor, or lessor, licensor, or 
bailor, of any article attempting to restrain or prevent, 
in any manner, either directly or indirectly, etc. Then 
what? We must turn back and tack it on to the first 
clause. There we find that we cannot attach any con- 
sequence to the attempt unless it has already appeared 
to the court in some action, civil or criminal, that a 
contract was made or combination entered into, to 
which such vendor was a party and that such contract 
or combination restrained in some manner or in some 
degree interstate commerce. Then a conclusive pre- 
sumption arises that such restraint was or is unreas- 
onable. But we are not yet to the end of the riddle. 
We must now attend to another integer in the wordy 
puzzle. Not only is the provision aimed at a vendor 
who attempts, etc., but he must have been engaged in 
carrying on some business, "to which the contract, 
combination, or conspiracy relates, or in connection 
therewith." You have now got your man in a certain 
capacity attempting to restrain (or prevent), etc., by 
any (or all), of certain means, or under certain speci- 
fied circumstances. There must already have been a 
restraint established in court and in that case and un- 
der these circumstances, and as to this particular ven- 
dor, etc., a conclusive presumption of unreasonable- 
ness arises, provided he is "carrying on any business 
to which such contract, combination or conspiracy 
relates or in connection therewith." But hold on. 
This very subordinated act is to be a new element in 
the Anti-trust Act, because the Act now takes no 

202 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

notice of mere attempts to restrain trade unless 
amounting to an attempt at monopolization. And 
does the conclusive presumption of unreasonableness 
also apply to the attempt? We have here not only 
wheels within wheels, but some of the wheels are turn- 
ing in different directions. 

It would be difficult or impossible to estimate the 
number and character of questions which would neces- 
sarily arise in attempted applications of it to cases 
brought before the courts. At any rate, one idea 
stands out conspicuously. The draftsman intends to 
fasten upon persons who do certain things, and upon 
others who do the same or other things in certain ways 
or in certain relations, a conclusive presumption of 
criminal guilt and civil liability under the Anti-trust 
Act, although the things done may have no tendency 
to restrain trade nor any connection with any combin- 
ation or conspiracy. This the section would accom- 
plish, if it accomplished anything. Lettered subdiv- 
ision (a) fastens the presumption upon any person so 
related who "attempts to restrain or prevent in any 
manner, either directly or indirectly, any vendee, les- 
see, licensee, or bailee from purchasing leasing, 
licensing, or obtaining such article, or any other ar- 
ticle from some other person, or using such article or 
any other article obtained from some other person, 
whether such attempt (first) to be made by an agree- 
ment or provision, express or implied, against such 
purchase, lease, license, or bailment against such pur- 
chase, lease, license or use, or (second) be made by 
a condition in the sale, lease, license or bailment 
against such purchase, lease, license or use, or (third) 
be made by imposing any restriction upon the use of 
the article so sold, leased, licensed or bailed, or 

203 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

(fourth) be made by making in the price, rental or 
license any discrimination based upon whether the 
vendee, lessee, licensee, or bailee purchases, hires or 
becomes a licensee of or uses any article made,, sold, 
licensed, leased, or furnished by some other person, or 
(fifth) be made in any other manner except the ordi- 
nary solicitation of trade." Without reference to the 
other subdivisions (b) to (i), this alone would place a 
greater restraint upon the normal and usual business 
of the country, and would more harshly interfere with 
its effective transaction as it has always been trans- 
acted, than could possibly result from all the trusts 
and monopolies in the country with the Anti-trust 
Act wiped out and they given free rein. True, it is al- 
most a hopeless jumble of words, and yet it is possible 
to so strain one's faculties as to give the language a 
meaning; and that meaning is all embracing. 

The proponents of this subdivision have entirely 
misconceived the true purpose of those who estab- 
lished a constitutional government, which was the se- 
curing of freedom, an important part of which is the 
freedom of citizens to make binding contracts with 
each other, and of the well established limitations ob- 
served in the enactment of anti-trust legislation, 
which was the regulation of the right of contract and 
power of association only so far as was necessary in 
order that this liberty of contract between individuals 
might have free play. They are attempting to carry 
this underlying policy of the Act into private contractual 
relations where no public interests are affected or in- 
volved, not to mention the fact that they are attempting 
to regulate interstate and intrastate commerce indis- 
criminately. They here attempt to establish an espionage 
of and interference with private affairs which, if it were 

204 



LEGISLATIVE PROPOSALS OF MR. LENROOT 

possible to do the administrative work required, would 
make our Government the most viciously paternaHstic to 
be found under the sun. The owners of patents are not 
spared or exempted; and one immediate effect of the 
law, if valid, would be to render patent rights unsaleable 
and the production of patented articles no more worth 
while than the production of sheep or vegetables. 



205 



CHAPTER XI 

OTHER OBJECTIONS TO LENROOT MEASURE 

While no one will deny the power and duty of Con- 
gress to so change a law which the courts have miscon- 
strued as to make future misconstructions impossible, 
yet the courts undoubtedly have the last word on con- 
stitutional questions, and its settled construction of laws 
which have been in the books from the foundation of 
the Government will still command great respect by 
Senators and Representatives. In construing the provision 
empowering Congress to secure to discoverers of inven- 
tions and to authors exclusive rights the Supreme Court 
has said that the owner of a patent could secure that 
exclusive right by contract, any term of which would be 
binding and enforceable if not positively illegal. The 
illegality here spoken of would be a statutory prohibition, 
since there are no common law principles governing 
herein, and all questions pertaining to the scope of the 
patentee's rights being Federal exclusively, where the 
decision of a State court has been adverse to a right 
privilege or immunity claimed by the owner of a patent, 
such decision was to that extent a judicial definition of 
the word ^'exclusive," used in the Constitution. And it 
is a reasonable inference from what has been said by 
the courts that any rights granted, or authorized to be 
granted, to patentees are, and must be, exclusive. But 
the above quoted subdivision would take from a patentee 
every conceivable means for excluding others from equal 

206 



OTHER OBJECTIONS TO LENROOT MEASURE 

rights with respect to the production sale and use of his 
patent that are now enjoyed by him exclusively under 
the law. It goes much further. It deprives the people 
of many rights now enjoyed by them in making con- 
tracts for the production, sale and use of unpatented 
articles. 

The subdivision we have just discussed appears to be 
specially aimed at the owners of patents, but the other 
lettered subdivisions of this section are aimed indis- 
criminately at all established business methods and prac- 
tices. Subdivision (b) would prevent a manufacturer 
or jobber offering a discount or rebate to a customer who 
has become profitable to him because of having become 
a large purchaser. If he sold a customer a half dozen 
or one hundred of an article at one dollar, he could not 
stipulate that if the customer, during the course of the 
year took one thousand the price should be only ninety 
cents throughout. Under the operation of subdivision 

(c) if a manufacturer or jobber has adopted a scheme 
of having all his dealings in a given town with one man 
or one firm, he must abandon that plan of doing busi- 
ness, because his terms and prices must be open alike 
to all. He must either keep his goods on his shelves 
or in his warehouse or every sale must be on the same 
terms and at the same price, whether the demand is for 
a single article or unit of quantity or for a thousand. 
This is a common feature of subdivisions (b) and (c). 

And the same principal design is seen in subdivision 

(d) ; but lest perchance anything be left unprovided for, 
or any phase of business escape from the ravages of 
the enraged innovator, discrimination in prices placed 
upon the same article sold in different localities is here 
expressly forbidden. The producer of an article which 
he could sell at five dollars at the place of manufacture 

207 



OTHER OBJECTIONS TO LENROOT MEASURE 

and realize a profit he might not be able to sell in another 
city for less than six dollars, or in a rural section for 
less than seven dollars with the same profit, because 
of the addition to organization cost due to remoteness. 
And yet he would have to either reduce the out-of-town 
and rural prices to a point at which his profits would 
be wiped out, or increase his local prices to a point that 
would give that market to the producer of an inferior 
article or to a monopoly able to afford the reduction. 

Subdivision (e) has substantially the same purpose and 
the same comment is applicable. 

Subdivision (f) requires special and separate con- 
sideration. It reads thus: 

(f) If a natural person, does business directly or indirectly 
under any name other than his own or that of a partnership of 
which he is a member ; or if a corporation does business under 
any name other than its own corporate name ; or if there be 
any concealment or misrepresentation as to the ownership or 
control of such business ; or if there be any misrepresentation 
as to the identity of the manufacturer, producer, vendor, or 
licensor of any article sold or leased. 

The purpose of the concealment or withholding from 
publicity is here treated as immaterial. Under this un- 
qualified and sweeping language a party could not be a 
silent partner in a firm, notwithstanding that as such he 
would be liable in case of its insolvency juts as if his 
name were part of the firm name, and there were the 
best of reasons for his name not appearing. Often 
many persons have interests in a business concern and 
it would be impossible for all their names to appear in 
every transaction. Nevertheless, in such a case, the in- 
tent or purpose with which the name was withheld could 
not be put in evidence under this provision, because it 
fixes upon him a conclusive presumption of guilt. Nor — 
carrying along the essential connection — would it be 
material under the scope of the bill, whether such con- 

208 



OTHER OBJECTIONS TO LENROOT MEASURE 

cealment or withholding pertained to an interstate trans- 
action or to one beginning and ending within the borders 
of a single State. 

Subdivision (g) would place a greater restraint 
upon liberty than was ever before seriously proposed 
to a legislative body. It reads thus : 

(g) As the vendor, lessor, licensor, or bailor of any article, 
attempts to prevent or detsroy competition by supplying or offer- 
ing to suuply such article without charge or at prices at or below 
the cost of production and distribution. 

Under that provision a dealer could not give or offer 
to give little toys to children in order to stimulate his 
trade in staple articles, even if the toys had been left 
on his hands after a holiday season and had ceased to 
be saleable. And if he did so, he would be conclusive- 
ly guilty, of what? According to the bill he would be 
guilty of restraint of interstate trade, but it would 
seem that his act would rather tend to the promotion 
or increase of trade. But this is one of the wheels 
having an eccentric movement, and turns in the oppo- 
site direction to what you would naturally expect. 
This provision was evidently prompted by the fallac- 
ious notion that whatever reduces, or lessens compe- 
tition restrains trade. But is it not just as correct to 
say of such an act that it creates, as that it destroys 
or prevents competition? 

Subdivision (h) relates to spying on, and securing 
information by illegal means concerning a competi- 
tor's business. The first remark in order about that 
is that by no arrangement of any set or combination 
of words to be found in the language could Congress 
constitutionally make an offense out of spying on a 
competitor's business. It could by no possibility con- 
stitute restraint or monopolization of trade, or affect 

209 



OTHER OBJECTIONS TO LENROOT MEASURE 

trade directly to any extent whatever. It is equally 
difficult to see how actual trade could be affected by 
getting information about another's business whatever 
the means employed, whether legal or illegal. But 
perhaps we ought to bear in mind that this is to be a 
code of business morals, all inclusive. 

Subdivision (i) makes a direct appeal to prejudice 
and rests upon the heresy that any rule or practice 
which limits competition is so objectionable as to re- 
quire legislation for its removal. By this clause. Con- 
gress is invited to confer upon the courts discretionary 
and legislative powers broader than itself possesses. 
The draftsman evidently cherishes the error that "re- 
straint of trade" and "restraint of competition" are 
synonymous terms. The word "unfair" here used is 
even of broader and more shifting use and signifi- 
cance than the word "unreasonable." It would re- 
quire every judge to adopt a moral code of his own, 
and no two might agree. But still worse, it would re- 
quire every business man to adopt one, and to make 
any mistake in any he might adopt would cost him 
dearly. 

Now for a few comments on excerpts from these 
lettered subdivisions taken here and there: "(a) As 
vendor, lessor, licensor, or bailor of any article, at- 
tempts to restrain or prevent in any manner, either 
directly or indirectly, any vendee," etc. This is ob- 
viously not limited to a tirne anterior to the decision 
of the court that the case presented was one of re- 
straint, nor is it limited to the transaction upon which 
the decision rests. As the provision reads, the pre- 
sumption follows the party through life, or so long 
as he remains in the business. And it is immaterial 
whether the transaction belong to interstate or in- 

210 



OTHER OBJECTIONS TO LENROOT MEASURE 

trastate trade. At present, a sale and delivery to a 
purchaser at a railway station is not held to be an in- 
terstate transaction, though the purchaser may con- 
template an immediate interstate shipment, because it 
only affects interstate commerce indirectly and col- 
laterally. Not so if this bill should pass. Its purpose is 
to drag the many millions of such transactions, occur- 
ring in the nation every day into Federal jurisdiction.- 
And not only sales, but leases, licenses and bailments, 
no title passing, notwithstanding that the courts hold 
them not a part of commerce, even though lessor and 
lessee, licensor and licensee, bailor and bailee reside in 
different States. 

Then we come to this : — 

"Or (fifth) be made in any other manner except the 
ordinary solicitation of trade." If the act has the 
character, in the opinion of the Federal authority and 
a jury of unusual solicitation of trade it stands in the 
category of things condemned and the party goes to 
trial with a conclusive presumption that commerce 
has been not only restrained, but unreasonably re- 
strained. But as to what constitutes ordinary solici- 
tation and what solicitation of different character, the 
law now furnishes no test, because no one ever before 
conceived the idea of legislating on such a subject. 
How any standard or test could ever be fixed is one of 
the unsolvable riddles of the bill. 

Passing over several other extraordinary matters, 
we have (subdivision g). Those who supply or offer 
to supply such article "at prices at or below the cost 
of production and distribution" are placed in the 
criminal class. How tabs are to be kept on some mil- 
lions of producers so as to keep an accurate record of 
their expenditures in production, and sale prices, so as 

211 



OTHER OBJECTIONS TO LENROOT MEASURE 

to know whether they are obeying or violating this pro- 
vision, or who is to attend to it, has not been explained. 
If it is to be enforced at all in keeping with its spirit 
and purpose, no man engaged in production can be 
trusted beyond the surveillance of an inspector. The 
prohibition applies to any one who makes the offer. 
So the jobbers, wholesalers and retailers would also 
have to be watched, and all their dealings recorded for 
comparison with the records made of production costs. 
Those guilty of using any "unfair or oppressive meth- 
ods of competition" are also to have this conclusive 
presumption fastened upon them (subdivision i). 
What is unfair, what is oppressive under the circum- 
stances of any particular case, is as much a matter of 
speculative opinion as anything that could be men- 
tioned. ' 

Glancing back to the matter found under "(B)" we 
see that if there has been a successful prosecution of 
any corporation or association of which any party ac- 
cused under the provisions of "this Act" was a member, 
he is not to have his day in court as to the charge pre- 
ferred against him, but is to be shut out and deprived 
of the benefit of any proof which he might otherwise 
be entitled to offer by this conclusive presumption. 
Was ever anything so fantastic and monstrous serious- 
ly offered to a body of lawmakers for serious consid- 
eration ? 

This clause, preceded by a capital "B" in brackets, 
apparently was ornamented with the bracketed letter 
for no other purpose than to give it emphasis, or to 
make it conspicuous. It has only the remotest con- 
nection with anything else in that section, or in the 
bill. It simply means that if a corporation has been at 
any time, however, distant in the past, successfully 

212 



OTHER OBJECTIONS TO LENROOT MEASURE 

proceeded against under the Anti-trust Act, any one 
connected with it as a stockholder or otherwise is to 
become an outlaw when he acquires and while he holds 
any of its stock. That is to say, he is an outlaw in the 
respect that he is deprived of the right, no matter what 
the circumstances, of showing that any restraint, how- 
ever slight or indirect, that he has put upon trade was 
other than unreasonable. 

Then we come to a little clause, perhaps more im- 
portant and significant than any other of equal length 
to be found in the bill. It reads thus : "The foregoing 
enumeration of acts, conduct, methods and devices 
which it is herein declared shall each conclusively be 
deemed unreasonable does not include, and shall not 
be construed to exclude or as intended to exclude, any 
other acts, conduct, methods or devices which are or 
may be unreasonable." This tends to confirm the view 
that the whole proposal will inure to the benefit of 
the railroads and other forms of what is known as "big 
business," It would have been easy to have specified 
rate agreements such as are entered into by traffic 
managers and price agreements reached informally at 
Gary dinners, just as the other matters are specified in 
the section. Or this saving clause might have used the 
words, "contracts, combinations, or conspiracies," af- 
ter the word "devices," where it occurs a second time. 
Neither of the words used includes, or is synonymous 
with those just suggested. A contract combination 
or conspiracy is the result of acts, conduct, methods 
and devices, but is not the same thing. The propon- 
ents have simply seized upon a considerable number of 
practices or methods which characterize business in 
its worst aspects or exceptional cases of what they 
consider symptoms of unfair competition and seek to 

213 



OTHER OBJECTIONS TO LENROOT MEASURE 

suppress them by Federal legislation. The fact that 
nearly everything specified comes within the police 
power of the States and that they are outside Federal 
cognizance under the Constitution does not seem to 
have embarrassed them in the least. The scheme of 
prohibiting and penalizing these practices is evidently 
founded upon a misapprehension of the purport of parts 
of certain judicial opinions in cases decided under the 
Anti-trust Act. From the fact that many of these 
"acts, conduct, devices," etc., characterized and were 
incidental to the business of some of the great trusts 
and combinations under review by the courts, and 
were referred to and discussed in connection with ren- 
ditions of judgments, it has been here assumed that 
they constituted restraints of trade, or, at any rate, 
might properly be given greater force and effect than 
heretofore as evidence of restraint. Not only do they 
propose to shift the burden of proof from the prosecu- 
tion to the defense, but they would attach to the evi- 
dence a conclusive presumption, both of which are 
legislative anomalies, the like never having been pre- 
viously attempted, even in the making of codes of civil 
practice; and in criminal procedure would obviously 
constitute a denial of due process of law. The Govern- 
ment in some of the cases proved numerous transac- 
tions and methods practiced 'dtQr^iu^^^ organization 
by the combinations proceeded ap-ains^ ^^ order to de- 
velop and establish the pupose in t''^^ minds of their 
promoters and organizers. Such ev'^^^^"^^ ^^ °^ course 
admissible in all cases wherv such purpose is doubt- 
ful, or the rule governing all Crigf piracy cases, allow- 
ing proof of overt acts, applies. But that these specific 
acts of wrongdoing were elements of the offense charged, 
or that they could \ t properly dealt with as separate 

214 



OTHER OBJECTIONS TO LENROOT MEASURE 

subjects for congressional legislation, was never so 
much as intimated. 

Attempts may be made to justify these particular 
provisions of the bill under the power of Congress to 
create a judicial department and prescribe for it rules 
of practice and of evidence. While it is true that Con- 
gress has that power, it exercises it subject to the ex- 
press prohibitions of the Constitution, one of which is 
that no one shall be deprived of life, liberty or property 
without due process of law. Nor can Congress, in the 
form of prescribing judicial remedies, go beyond the 
powers delegated to it any more than by resorting to 
any other form of legislation. 

While, as before stated, no identical legislation has 
ever been heretofore proposed to Congress or embod- 
ied in a statute by any State, yet some similar measures 
have been passed in some of the States and passed upon 
by their courts, one or two such cases having been 
brought on appeal or writ of error to the Supreme 
Court of the United States. All such legislative attempts 
have proven abortive. 

The last clause of Section 10 should be separated 
for the purpose of being discussed into two parts; (1) 
the part down to the word "nor," and reading as 
follows : 

The provisions of clause (a) of this section shall not apply- 
to any case where the vendor, lessor, licensor or bailor of any 
machine, tool, implement or appliance protected by lawful patent 
rights vested in such vendor, lessor, licensor, or bailor requires 
the purchaser, lessee, licensee, or bailee to purchase or hire from 
him component or constituent parts of such machine, tool, imple- 
ment, or appliance which such vendee, lessee, licensee, or bailee 
may thereafter aquire during the continuance of such patent 
right. 

and (2) the balance of the clause in these words: 

215 



OTHER OBJECTIONS TO LENROOT MEASURE 

Nor shall any of the provisions of this section apply to the 
mere appointment of sole agents to sell, lease, license, bail, or 
furnish any article. 

The only apparent effect of the first part is to em- 
phasize and confirm all the specifications in subdivis- 
ion (a). But when we come to consider the second 
part, in view of all that precedes and follows it in the 
bill, we see a confirmation of the statement that the 
bill, if enacted, will militate powerfully against the 
comparatively small man in business and give addi- 
tional advantage, prestige and power to the great com- 
binations of men and capital. The former could of 
course appoint the retail dealer his sole agent, but he 
cannot afford to keep separate accounts with thou- 
sands and tens of thousands throughout the country. 
He has not the capital nor the facilities for keeping up 
so extensive a businesss organization as that would 
necessitate, even if he could find retail dealers willing 
to act as his sole agents and incur the expense and 
labor which that arrangement would involve. The re- 
tail dealers willing to buy of him on his own terms a 
sufficiency of his articles or commodities to supply 
their respective markets are abundant. But the great 
consolidated industries can establish as many sole 
agencies in different parts of the country as they 
please. While because of the restrictions and prohibi- 
tions of such a law the producer with small capital 
would have to surrender his trade with dealers at a 
distance, his powerful competitor would be in a po- 
sition, through his sole agents and their sub-agents 
to take over the trade so surrendered. The latter 
would at once realize the advantage given by such a 
law and would surely and quickly seize it. They 
would find it to their interest to establish sole agen- 

216 



OTHER OBJECTIONS TO LENROOT MEASURE 

cies even for territory in which there was not at first 
enough profitable business to meet expenses with a 
view to driving out competition and expanding the de- 
mand. In this connection it should be noted that, 
while prices must be uniform, there is nothing in the 
bill to prevent a powerful business establishment 
changing the prices from time to time, and that the 
uniform price principle would imperatively necessi- 
tate price agreements among large producers. And 
here is probably one of the main underlying purposes 
of this bill. If the qualification of reasonableness be 
fixed and crystalized in the statute, then a price or 
rate agreement cannot be successfully assailed in the 
courts unless its unreasonableness can be shown; and 
with a provision in the law requiring uniformity in 
the prices of each producer and dealer, what more 
reasonable than to permit him to come to an under- 
standing with his competitors, with respect to prices. 
Naturally the managers of and attorneys for big busi- 
ness have refrained from opposing or criticising this 
bill. 

In mediaeval times and even within the memory of 
those who framed our constitution, men were accused, 
tried and sentenced, or their property confiscated with- 
out even the knowledge that any conduct of theirs had 
been called in question. We therefore find both in 
the original Constitution and in the Bill of Rights 
added to it as an amendment, ample safeguards against 
arbitrary deprivations of property, secret proceedings 
and arbitrary judgments. The presumptions pre- 
scribed in this bill constitute an attempt to revive the 
abuses and barbarities of those ancient times, in the 
respect that they would dispense with proofs, allow 
accused persons to be convicted of crime without the 

217 



OTHER OBJECTIONS TO LENROOT MEASURE 

presence of witnesses, and deprive them of their prop- 
erty and civil rights without due process of law. 

There are cases where it is entirely consistent with 
justice to allow a tentative inference of an essential 
fact from the proof of other facts. For instance, the 
statutes of many if not all the States allow a re- 
buttable presumption of malice from the deliberate use 
of a deadly weapon, and guilty knowledge from the 
possession soon after a theft of stolen property. But 
in all such statutes there are two constitutional essen- 
tials: (1) The inference or presumption must be one 
which naturally arises from the facts upon which it is 
predicated, and (2) the party against whom the in- 
ference is allowed must have ample opportunity to 
explain it away; that is to say, to rebut it. But the 
provisions in this bill on the subject of presumption 
ignore both these essentials. Some of them are as far- 
fetched as if it were proposed to throw upon all persons 
who happened to attend at a lawful assemblage, if a 
crime happened to be committed there, the burden of 
proving their innocence of that crime under accusa- 
tion for its commission. A presumption which has no 
relation or only a remote relation to the fact upon 
which it is based possesses the peculiarity that it is 
generally impossible to explain the facts so as to rebut 
the presumption in the face of the presumption, where- 
as it is otherwise if the inference of the law be nat- 
ural and logical. 

It may be here remarked that there is no such thing 
in criminal procedure as a conclusive presumption, and 
any attempt to so amend the Anti-trust Act as to ab- 
solutely forestall or shut out the proof of facts by 
such a short cut to dark age practices as are found in 
this bill is obviously unconstitutional. 

218 



OTHER OBJECTIONS TO LENROOT MEASURE 

A corporation and others we will suppose are on 
trial charged with being in a combination to restrain 
interstate commerce, and it is shown that in some di- 
rect or indirect way a degree of restraint, slight or 
substantial, has occurred. One of those proceeded 
against has been a vendor, lessor, licensor or bailor 
of goods or commodities, and as such has done what? 
Restrained trade? Whether what he did was a re- 
straint is a collateral or negligible question. The 
mere fact that he did or even attempted to do one of 
the objectionable and prescribed acts is to be carried 
over and back to the principal thing and is to give a 
color and tenor regardless of its real complexion and 
character, and its legal effect is to be visited not only 
upon the offending party but upon his associates 
in the litigation. This vital and far-reaching result 
is to flow from any of the trivial acts so specified or any 
other similar acts which the triers of the issue do not 
believe belong to the class of acts or kind of conduct 
morally adapted to the "ordinary solicitation of trade" 
or constitute fair and non-oppressive methods of 
competition. Most of these things are now outside 
the domain of interstate commerce, and none of them 
are in and of themselves within the prohibitions of any 
Federal statute. Nevertheless they are to be now and 
hereafter under the ban as evil and criminal. They are 
no longer to be cognizable under the police powers of 
the States, but are to be condemned by Federal stat- 
utes and tried in Federal courts. All the habits and 
methods of their careers are to be abandoned by the 
veterans in business, and if too old to learn to adapt 
themselves to a new curriculum, they will have to re- 
tire, while night schools and special training courses 

219 



OTHER OBJECTIONS TO LENROOT MEASURE 

must be provided to teach a new dispensation to the 
young. 

Few conclusive presumptions are permitted even in 
cases affecting mere civil rights, and these only when 
the safety or welfare of society requires that they 
should prevail, and where no credible evidence could 
be adduced to contradict the inference or rebut the 
presumption. For instance, where both man and wife 
perish in the same shipwreck it is conclusively pre- 
sumed that the husband survived the wife. And 
where, in the absence of fraud, parties have put 
in writing all the terms of their contract clearly 
and unambiguously the writing is conclusively pre- 
sumed to fully embody the intention of the parties. 
But the presumption goes no further. A party cannot 
be precluded from showing the invalidity of the con- 
tract because of fraud or illegality or total failure of 
consideration. 

It is here in order to inquire as to the true meaning 
of the term, "interstate commerce," as used in the con- 
stitution. The term has both a general and a restricted 
meaning, but it is not within the power of Congress 
to enlarge it by legislation, whether in the form of 
new definitions or otherwise; that is, it cannot bring 
any subject within the true meaning of the term 
by making it the subject of an enactment on the mere 
assumption that it belongs to interstate commerce. In 
the Lottery cases (188 U. S., 367), Justice Brewer 
said : 

When Chief Justice Marshall said (Ogden v. Gibbons, 9 
Wheat., 1) that commerce embraced intercourse he added com- 
mercial intercourse, and this was necessarily so since, as Chief 
Justice Tawney pointed out, if intercourse were a word of larger 
meaning than the word commerce it could not be substituted 
for the word of more limited meaning contained in the Constitu- 
tion. 

220 



OTHER OBJECTIONS TO LENROOT MEASURE 

The courts have in some of the cases used expres- 
sions which were somewhat confusing, or rather they 
have not taken the trouble to make clear their correct 
ideas. The federal government cannot regulate any- 
thing when not being used in interstate commerce, nor 
any person (or corporation) merely because engaging 
in interstate commerce. In requiring, for instance, 
that all trains carrying interstate freight or passen- 
gers shall be equipped with air brakes and safety coup- 
lers, Congress is not as a specific object regulating 
these devices nor even the trains, nor yet the corporate 
carriers. True the statute provides for the prosecution 
and punishment as for a midemeanor the carriers who 
do not comply with the law, but that is the vindicatory 
part of the Act. The subject matter of the regulation 
is the transportation — the interstate commerce. No 
more are they, the corporations, thereby regulated 
than are liquor dealers when required to take out 
a license by a State law. Such a law is the regulation 
of the liquor traffic; and every person who goes into 
that business thereafter must, as a condition precedent, 
obtain a license whether such a person be white or 
black, native or foreign born, engaged in the liquor 
business or in some other occupation. Safety appli- 
ances, carriers and corporations are necessarily men- 
tioned in interstate commerce regulations just as are 
shippers of all classes and the articles shipped. But the 
mere fact that railroad companies are constantly carrying 
merchandise and passengers and are therefore continu- 
ously under the immediate operation of the laws does 
not give the federal government any control over them 
as corporations or their property, nor any over the 
private affairs of a shipper, except such of his af- 
fairs as are involved in the transportation of his prop- 

221 



OTHER OBJECTIONS TO LENROOT MEASURE 

erty in interstate commerce. Nor does the fact that 
two parties to a contract reside in different States, 
even though it relate to a patent, constitute the trans- 
action one of interstate commerce, notwithstanding 
that either of these facts may serve to give a federal 
court jurisdiction of any litigation that may arise from 
such a contractural or other relation. We can con- 
ceive of an owner of farming lands within a State 
selling them and building a line of railroad, long or 
short, across a State line. The farms were without 
federal supervision as property, both with respect to 
the uses made of them and their ownership. Nor does 
the change of investment make any difference in this 
respect. He now owns so many miles of railroad in 
each State taxable in the respective States, and the 
rolling stock is mere personal property taxable in the 
State of his residence. The case is not altered if the 
individual owner now forms a corporation and trans- 
fers to it the railroad property. He or it merely comes 
within the sphere of federal control with respect to the 
interstate movement of freight and passengers and the 
receptacles of these, the trains and cars, are all the time 
between consignment and delivery subject to regula- 
tion because inseparably connected with the interstate 
traffic. But we have no such case where a contract is 
made concerning property, whether such a contract be 
a sale, lease, license or bailment, merely because the 
parties to it happen to reside in different States. If a 
contract provide, either expressly or by necessary impli- 
cation for removal of property from one State to another, 
then that one phase of it pertains to interstate commerce, 
and would be subject to congressional regulation. But 
Congress could not legislate as to its terms or the ob- 

I 222 



OTHER OBJECTIONS TO LENROOT MEASURE 

ligations thereby created, unless these interfered with 
the freedom of interstate commerce. 

The issuing of a policy of insurance is not a transac- 
tion of commerce within the meaning of the commerce 
clause of the Constitution, even though the parties 
be domiciled in different States (Paul v. Virginia, 8 
Wall, 168) ; and this rule was applied to the insurance 
of a ship in transit between the ports of different States 
(Hooper v. California, 155 U. S., 648). And it was 
held that contracts for sales of cotton for future deliv- 
ery which did not obligate interstate shipments, were 
not subjects of interstate commerce, nor did the fact 
that delivery might be made by means of interstate 
carriage make them so. (Ware & Leland v. Mobile 
County, 209 U. S., 405.) 

Now suppose that this bill, provided that if an insur- 
ance company or brokerage firm should be shown to 
have become a party to a contract or combination 
violative of the Anti-trust Act, some legal conse- 
quence, no matter what, should be visited upon them 
as to each policy of insurance issued, and each brok- 
erage contract made by each of them, respectively. 
Such legal consequence would be an attempted regula- 
tion of the policies of insurance in the one case and of 
brokerage contracts in the other, according to the de- 
cisions of the Supreme Court. If the unconstitution- 
ality of the Lenroot Bill is not made clear by the de- 
clisions of the Supreme Court, then it would be ex- 
ceedindy difficult for the courts to make anything 
clear. 

The effect of the bill, if passed, would be to prevent 
the extension, rather than the restraint of trade; to 
limit rather than increase competition ; and if there be 
any justification for it, it must be sought outside the 

223 



OTHER OBJECTIONS TO LENROOT MEASURE 

Anti-trust Act. This clearly appears from the opin- 
ions of the courts, and especially in the two cases which 
will now be cited. Whitewell v. Continental Tobacco 
Co. (125 Fed. R., 457-462), has been cited with ap- 
proval by the Supreme Court. As the views of the 
court are very instructive and exactly in point, an ex- 
tensive quotation is taken. The court, per Sanborn, 
judge, said : 

It has now been settled by repeated decisions of the Supreme 
Court that this question must be tried, not by the intent with 
which the combination was made, nor by its effect upon traders, 
producers, or customers, but by the necessary effect which it has 
in defeating" the purpose of the law. That purpose was to pre- 
vent the stifling or substantial restriction of competition, and the 
test of the legality of a combination under the act which was in- 
spired by this purpose is its direct and necessary effect upon 
competition in commerce among the States. If its necessary 
effect is to stifle or to directly and substantially restrict free 
competition, it is a contract, combination, or conspiracy in re- 
straint of trade, and it falls under the ban of the law. (Citing 
numerous cases.) If, on the other hand, it promotes or but 
incidentally or indirectly restricts competition, while its main 
])urpose and chief effect are to foster the trade and to increase 
the business of those who make and operate it, then it is not a 
contract, combination or conspiracy in restraint of trade, within 
the true interpretation of this act, and it is not subject to its 
denunciation. 

The right of each competitor to fix the prices of the commodi- 
ties which he offers for sale and to dictate the terms upon which 
he will dispose of them is indispensible to the very existence of 
competition. Strike down or stipulate away that right and com- 
petition is not only restricted but destroyed. Hence agreements 
of competing railroad companies to intrust their power to fix 
rates of transportation to the same man or body of men (citing- 
cases), and contracts of competitors in the production or sale 
of merchantable commodities to deprive each competitor of the 
right to fix the prices of his own goods, the terms of the sale, 
or the customers to whom he shall dispose of them, and either 
to fix these prices, terms and customers by the agreement of the 
competitors, or to intrust the power to dictate them to the same 
man or body of men (citing cases), necessarily have the effect 
either to stifle competition entirely or to directly and substan- 
tially restrict it, because such contracts deprive the rivals in trade 
of their best means of instituting and maintain competition be- 
tween themselves. 

The Tobacco Company and its employee were not required, 

224 



OTHER OBJECTIONS TO LENROOT MEASURE 

like competitors engaged in public or quasi public service to 
sell to all applicants who sought to buy. «^ Jo sell o all inte^^^^^^^ 
ing purchasers at the same prices. They had the right to select 
hfir customers, to sell and refuse to sell to whomsoever they 
chose and to fix different prices for sales of the same commod- 
ities to different persons. In the exercise of this right they 
selected those persons who would refrain from handling the 
'oods of their competitors as their customers, by selling their 
products to them at lower prices than they offered them to 
others. There was nothing in this selection, or in the means 
employed to affect it, that was either illegal or immoral It had 
no necessary effect to directly and substantially ^f t'-ict f^r^f^^^^^^- 
pctition in any of the products of tobacco, and it did not unlaw- 
fully restrain interstate commerce, because it in no way re- 
stricted the exercise of the rights of the ^^^Pf^^ ^^/^^^J^^!^^ 
tobacco company to fix the prices of their goods and the terms 
of their sales of similar products according to the dictates of 
their respective wills. _ , 4.1, 4- ^f +t.^ 

The purpose of the second section is the same as that ot the 
first— to prevent the restriction of competition ; and the two sec- 
tions ought to receive similar interpretations.^ The bupreme 
Court has declared that the true construction of. the first section 
is that no contract, combination, or conspiracy is denounced by 
it unless its necessary effect is to directly and sttbstantially re- 
strict competition in commerce among the States, by a parity 
of reasoning, the correct interpretation of the second section 
must be that no attempt to monopolize a part ot commerce 
^mong the States is made illegal or punishable by the provisions 
oMhft section unless the necessary effect of that attempt is to 
directly and substantially restrict commerce among the States 
The acts of the defendants had no such effect. They evidenced 
nothing but the legitimate efforts of traders to secure for them- 
selves Is large a part of interstate trade ^^P^^^^^le wh«^ 
left their competitors free to do the same. It was not—it couia 
not have been-the purpose or the effect of the second section 
of this law to prohibit or to punish the customary and universal 
attempt of manufacturers, merchants,, and tracers engaged in 
interstate commerce to monopolize a. fair share of ^t^^^he neces- 
sary conduct and enlargement of their trade, w^^'^VL'de.vorTof 
to leave their competitors free to make successful endeavors of 
he same kind. The acts of the defendants were of Aisjiatu^e 
and they did not violate the second section of the law. An 
auempt to monopolize a part of interstate commerce the neces- 
sary effect of which is to stifle or to directly and snbstant.any 
restrict competition n commerce among the States, violates tne 
second secdon of this act. But an attempt to monopolize a part 
ofTntersSte commerce which promotes, or but indirectly or inci- 
dentally restricts competition therein, whie its main purpose and 
chief effect are to increase the trade and foster the business or 
those who make it, was not intended to be rnade and was no 
made, illegal, by the second section of the act under considera 

225 



OTHER OBJECTIONS TO LENROOT MEASURE 

tion, because such attempts are indispensable to the existence of 
any competition in commerce among the States. 

And in the case of In re Greene (52 Fed. R., 115) 
the court was even more direct and emphatic, saying, 
per Jackson, judge: 

It is not very clear what Congress meant by the second sec- 
tion of the act July 2, 1890, in declaring it a misdemeanor to 
"monopolize" any part of the trade or commerce among the 
States or with foreign nations. It is very uncertain that Con- 
gress could not, and did not, by this enactment, attempt to pre- 
scribe limits to the acquisition, either by the private citizen or 
State corporation, of property which might become the subject 
of interstate commerce, or declare that, when the accumulation or 
control of property by legitimate means and lawful methods 
reached such magnitude or proportions as enabled the owner or 
owners to control the traffic therein, or any part thereof, among 
the States, a criminal offense was committed by such owner or 
owners. All persons individually or in corporate organizations 
carrying on business avocations and enterprises involving the 
purchase, sale, or exchange of articles, or the production and 
manufacture of commodities which form the subject of com- 
merce will, in a popular sense, monopolize both State and inter- 
state traffic in such articles or commodities just in proportion 
as the owner's business is increased, enlarged, and developed. 
But the magnitude of a party's business, production, or manu- 
facture, with the incidental and indirect powers thereby acquired, 
and with the purpose of regulating prices and controlling inter- 
state traffic in the articles or commodities forming the subject of 
such business, production or manufacture, is not the monopoly 
or attempt to monopolize whic hthe statute condemns. 

Before Congress accepts the proposal to inject the 
element of unreasonableness into the Anti-trust Act, 
as would the aforesaid indirect effect of this bill, it 
should fully consider the consequence of so doing. It 
has been suggested by learned counsel that certain 
language of the Chief Justice in the two recent cases 
might be hereafter recognized as mere dicta, but there 
is really no such prospect. And it seems entirely 
proper here to show the effect of the legislation here 
proposed. 

226 



OTHER OBJECTIONS TO LENROOT MEASURE 

In Cook V. State (29 Ind. App., 278) it appeared 
that an Indiana statute provided as follows: 

It shall be unlawful for any person to haul over any turn- 
pikes or gravel roads at any time when the same is (are) 
thawing through, or is (are), by reason of wet weather, in con- 
dition to be cut up and injured by heavy hauling, a load on a nar- 
row-tired wagon of more than two thousand or on a broad- 
tired wagon of more than twenty-five hundred pounds, and 
any person violating the provisions of this act shall be fined not 
less than $5 nor more than $50 for each load so hauled." Cook 
was prosecuted on an affidavit which charged that he "did 
then and there unlawfully haul over a certain gravel road, then 
and there situate, known as the Thompson gravel road, a load in 
his wagon, then and there having narrow tires, to wit, two inches 
in width, a load of more than 2,000 pounds in weight, at a 
time when said road was then and there thawed through and by 
reason of wet weather was then and there in a condition to be 
Qut up by heavy hauling, contrary," etc. 

The appeal was from an order refusing to quash the 
affidavit for failure to charge an offense. The court of 
appeals reversed the order and held that it could not be 
said as a matter of law that wagon tires of a certain 
width were wide tires or narrow tires, and that the statute 
was so indefinite in that respect that a prosecution there- 
under could not be sustained. 

be sustained. 

In the course of its opinion the Court of Appeals 
said : 

There must be some certain standard by which to determine 
whether an act is a crime or not, otherwise cases in all respects 
similar, tried before different juries, might rightfully be decided 
differently, and a person might properly be convicted in one 
county for hauling over a turnpike in that county and 
acquitted in an adjoining county of a charge of haul- 
ing the same load on the same wagon over a turnpike in like 
condition in the latter county, because of the difference in con- 
clusions of different judges and juries based upon their individ- 
ual views of what should be the standard of comparison of 
tires, derived from their varying experience on the opinions of 
witnesses as to what difference of width of tires would consti- 
tute one wagon a narrow-tired wagon and another broad-tired 
wagon. 

22y 



OTHER OBJECTIONS TO LENROOT MEASURE 

If it should be said that the question as to what is a narrow- 
tired wagon is one which may be determined, in a particular case, 
by the jury trying it, under proper instructions from the court, 
can we hold that the court in its instructions could lay down any 
principle or rule which would obtain in all such cases through- 
out the State? If so, can this court indicate what should be the 
scope and tenor of such instructions? The phrases "narrow- 
tired wagon" and "broad-tired wagon" are not technical phrases 
having a peculiar and appropriate meaning in law, and they are 
to be taken in their plain, ordinary, and usual sense. Thus taken, 
a narrow-tired wagon means having wheels with tires which are 
narrow, while a broad-tired wagon means a wagon having wheels 
with broad tires. If tires of particular widths be compared, it is 
easy to say which is comparatively narrow and which is com- 
paratively broad, but without any prescribed standard it is impos- 
sible to say as matter of law that a tire two inches wide is cer- 
tainly either a narrow tire or a broad tire. 

In a portion of the statutory description of the offense there 
is such indefiniteness that it is impossible for the court to say 
with requisite certainty that the description in the statute cor- 
responds with a definite state of facts shown by the affidavit. 
The court erred in overruling the motion to quash. 

Now it is obvious that a jury could more easily de- 
termine of a physical object, such as a wagon-tire, 
whether it was wide or narrow, than whether a mere 
abstraction, such as a restraint of trade, was reason- 
able or unreasonable. 

But an analogous question has been before the fed- 
eral courts, including the Supreme Court of the United 
States. In Louisville and N. R. Co. v. Railroad Com- 
mission (19 Fed. R. 679, 16 Am. & Eng. R. R. cases, 
15), the constitutionality of a statute imposing a pen- 
alty upon any railroad company fixing rates which 
should yield more than a "fair and just return" on its 
investment was involved. The court held it unconsti- 
tutional, because its terms were so vague that to col- 
lect penalties under it would constitute a taking with- 
out due process of law. Judge Baxter, delivering the 
opinion, said : 

Penalties cannot be thus inflicted at the discretion of a jury. 
Before the property of a citizen, natural or corporate, can be thus 

228 



OTHER OBJECTIONS TO LENROOT MEASURE 

confiscated the crime for which the penalty is inflicted must be 
defined by the lawmaking power. The legislature cannot dele- 
gate this power to a jury. If it can declare it a crimmal act for 
a railroad corporation to take more than a "fair and just return" 
on its investments, it must, in order to the validity of the law, 
define with reasonable certainty what would constitute such 
"fair and just return." The act under review does not do this, 
but leaves it to the jury to supply the omission. No railroad- 
company can possibly anticipate what view a jury may take of 
the matter, and hence cannot know in advance of a verdict 
whether its charges are lawful or unlawful. One jury may con- 
vict for a charge made on a basis of four per cent., while another 
may acquit an accused who has demanded and received at the 
rate of six per cent., rendering the statute in its practical working 
as unequal and unjust in its operation as it is indefinite in its 
terms. 

And the Supreme Court of the United States in Rail- 
road Commission cases (116 U. S., 336) refers to this 
Tennessee case and substantially approves it by dis- 
tinguishing the case then before the court from the 
Tennessee case. 

In Tozer v. United States (52 Fed. R., 919, 920), 
Justice Brewer, delivering the opinion, said : 

In order to constitute a crime, the act must be one which the 
party is able to know in advance whether it is criminal or not. 
The criminality of an act cannot depend upon whether a jury 
may think it reasonable or unreasonable. There must be some 
definiteness and certainty. * * * Applying that doctrine in 
this case, and eliminating the idea that the through rate is stand- 
ard of comparison of the local rate, there is nothing to justify 
a verdict of guilty against the defendant. (Chicago & N. W. 
Ry. Co. V. Dey, 35 Fed. R., 866; referred to and approved on 
same point.) 

The difference between the effect of indefinite terms 
in civil and criminal cases was pointed out by the 
Court of Appeals of Kentucky in Louisville & Nash- 
ville R. Co. V. Commonwealth (99 Ky., 136-137, 139), 
as follows : 

That this statute leaves uncertain what shall be deemed a 
"iust and reasonable rate of toll or compensation" cannot be 
denied, and that different juries might reach different conclu- 

229 



OTHER OBJECTIONS TO LENROOT MEASURE 

sions on the same testimony as to whether or not an offense has 
been committed, must also be conceded. 

The criminaHty of the carrier's act, therefore, depends upon the 
jury's view of the reasonableness of the rate charged, and this 
latter depends on many uncertain and complicated elements. 

That the corporation has fixed a rate which it considers will 
bring only a fair return for its investment does not alter the 
nature of the act. Under that this statute it is still a crime, 
though it cannot be known to be such until after an investiga- 
tion by a jury, and then only in that particular case, as anotlier 
jury may take a different view, and holding the rate reasonable, 
find the same act not to constitute an offense. There is no 
standard whatever fixed by this statute, or attempted to be 
fixed, by which the carrier may regulate its conduct, and it seems 
clear to us to be utterly repugnant to our system of laws to 
punish a person for an act, the criminality of which pedends, 
not on any standard erected by the law which may be known 
in advance, but on one erected by a jury. And especially so, as 
that standard must be as variable and uncertain as the 
views of different juries may suggest, and as to which nothing 
can be known until after the commission of the crime. 

If the infliction of the penalties prescribed by this statute would 
not be the taking of property without due process of law and 
in violation of both State and Federal Constitution, we are not 
able to comprehend the force of our organic laws. * * * 
When we look to the other side of the question we find the con- 
tention of the State supported by neither reason nor authority. 
No case can be found, we believe, where such indefinite legisla- 
tion has been upheld by any court where a crime is sought to be 
imputed to the accused. Manifestly, in actions by shippers 
against carriers for recovering back the excess of charges over 
reasonable rates the rule is quite different. In such actions the 
statute may be invoked as merely declaratory of the common 
law, and the question of reasonable rates is one to be heard by 
the court or jury. It is in fact a question of contract. Com- 
mon carriers are bound to carry when called upon for that pur- 
pose, and charge only a reasonable compensation for the car- 
riage. These are incidents of the occupation in which they are 
authorized to engage (94 U. S., 180). If this charge is more than 
reasonable, there is a violation of the contract, and the suit of 
the person aggrieved is because of such violation. 

On the question of the effect of creating rebuttable 
presumptions to render the Anti-trust Act unconsti- 
tutional as a criminal statute, the decisions are clear 
and conclusive. Both Federal and State authorities 
are abundant on this question. 

The case of State v. Beach (147 Ind., 74) was one 

230 



OTHER OBJECTIONS TO LENROOT MEASURE 

where a statute made it only prima facie evidence of 
a banker's intent to defraud in receiving a deposit, if 
his failure, suspension, or involuntary liquidation oc- 
curred within thirty days thereof. In construing that 
statute, the constitutionality of which was questioned 
in that case, the court said : 

A law which would, in effect, exclude the evidence of a party, 
and thereby deny him the right to be heard, would deprive 
him of due process of law. A law which provides that cer- 
tain facts are conclusive proof of guilt would be unconstitu- 
tional, as also would be one which makes an act prima facie evi- 
dence of crime, which has no relation to a criminal act, and no 
tendency whatever to establish a criminal act. 

This was cited and approved in State v. Thomas in 
1906 by the Supreme Court of Alabama (reported 40 
So. Rep., 271). A case of like import is Bailey v. 
Alabama (219 U. S., 219), where the court also said 
that the fact that the government is a party is immaterial. 

The Government is subjected to the same rules respect- 
ing the burden of proof, the quantity and character of 
evidence, the presumptions of law and fact, that attend 
the prosecutions of a like action by an individual. United 
States V. Stimpson, 197 U. S., 205. 

Does any one suppose that any mere rule of evidence 
could be established by statute to relieve the Govern- 
ment, in a criminal case, for combination or conspiracy 
in restraint of trade, of the necessity of overcoming 
the presumption of innocence, and of proving all the 
essential elements of the case? 

In passing upon a statute making certain acts prima 
facie evidence of a particular fact, the court, in Jack- 
son & Kansas City R. R. Co. v. Turnipseed (219 U. S., 
43) said: 

That a legislative presumption of one fact from evidence of 
another may not constitute a denial of due process of law or a 

231 



OTHER OBJECTIONS TO LENROOT MEASURE 

denial of the equal protection of the law ; it is only essential that 
there shall be some rational connection between the facts proved 
and the ultimate fact presumed, that the inference of one fact 
from proof of another shall not be so unreasonable as to be a 
purely arbitrary mandate. So, also, it must not, under guise of 
regulating the presentation of evidence, operate to preclude the 
party from the right to present his defense to the main fact this 
presumed. 

If a legislative provision not unreasonable in itself, prescribing 
a rule of evidence, in either criminal or civil cases, does not shut 
out from the party affected a reasonable opportunity to submit 
to the jury in his defense all of the facts bearing upon the issue, 
there is no ground for holding that due process of law has been 
denied him. 

In State v. Griffin (154 N. C, 614) in passing upon 
the constitutionality of a similar statute to that before 
the court in Bailey v. Alabama (212 U. S., 212) the 
court said : 

But there is one element absolutely essential to the validity of 
a legal presumption in order that it may not be obnoxious to 
the fourteenth amendment, the "due process" clause of the 
Federal Constitution. There must be some rational connection 
between the fact proved and the ultimate fact presumed, and 
that the inference of one fact from proof of another fact shall 
not be so unreasonable as to be a purely arbitrary mandate. 

Without attempting to discuss all the branches and 
subdivisions of this very complicated and involuted 
bill, we now give brief attention to the provisions for 
partitions of property and creation of receiverships. 
In the insertion of these provisions, the proponents 
are probably prompted by dicta of the court in the 
American Tobacco Company case — mere suggestions 
thrown out, without serious consideration, as the con- 
text shows. 

The courts, in U. S. v. American Tobacco Company 
case, were dealing with a matter strictly and purely 
of public interest. There would appear no place there- 
in for dealing with or taking care of private interests. 
And both the trial and the appellate courts acted be- 
yond their jurisdictions. After deciding a case before 

232 



OTHER OBJECTIONS TO LENROOT MEASURE 

them, they assumed to decide a new case to be brought 
before the lower court without pleading or trial, and 
by a method of procedure not having even the color 
of authority in this or any other statute, or at the com- 
mon law. 

Section 11 prescribes rebuttable presumptions to ap- 
ply in certain cases. It has been already shown that, 
unless the thing to be presumed has some substan- 
tial relation to the main issue, it is just as objection- 
able from a constitutional standpoint as a conclusive 
presumption. The control of "more than forty per- 
centum in value of the total quantity sold in the 
United States" or "in the part or district of the United 
States to which the business of such person, corpora- 
tion or association extends, of any article dealt in by 
such person the trade in which is affected by such re- 
straint" serves to fasten upon the person, etc., guilty of 
such control a rebuttable presumption of unreasonable 
restraint of trade (subd. (a)). By a district may be 
meant a school, election, congressional or judicial dis- 
trict, and by any part may be meant any territory, 
however small. But how are people engaged in pro- 
duction ever to know whether they are controlling 
forty-one or only thirty-nine percentum? Then we 
come to this: 

(b) If the vendor, lessor, licensor, or bailor of any article 
with a view to preventing competition, fixes an unreasonably 
high price upon any article which enters into the manufacture 
of an article which is used in producing any other article sold, 
leased, licensed, bailed or otherwise furnished by him the trade 
in which is affected by such restraint. 

It is somewhat difficult to understand the exact 
thing intended ; but we see at a glance that the prin- 
ciple of governmental price control would be here in- 
troduced. Therefore a few words on that subject 

233 



OTHER OBJECTIONS TO LENROOT MEASURE 

is in order. If the duty of fixing prices can be by any 
sort of adroit and clever scheme imposed upon the Gov- 
ernment, monopoly will have gained all it requires. 
Once begun on the large scale here mapped out, and 
a stopping place could never be found. It is imma- 
terial v^hether it be said that prices shall not be un- 
reasonably high or that they shall be reasonably low. 
It means the same thing. It then becomes the duty of 
some public official to fix the standard or scale of 
prices, and we then have discretionary government 
introduced where the greatest temptations will exist 
for infidelity to official duty. Nothing else, nor all 
else together, equals in importance the price of prod- 
ucts, and nothing is of half the value to monopoly as 
the fixedness of prices through official action. 

For the Government to assume the price-fixing func- 
tion would mean the guarantee of a reasonable profit 
to the financially weaker and less enterprising estab- 
lishments in a given line of production, and exorbitant 
profits to those of large capital and of a productive 
capacity sufficient to enable them to promote economy 
and attain great efficiency; whereas public interest re- 
quires that incapacity and unpreparedness be weeded 
out under the competitive system. It is no longer the 
policy of the great combinations of capital to drive 
their weak competitors entirely out of business, but to 
carry them along, making some kind of division of 
the trade with them looking to the maintenance of 
prices, retaining in the stronger hands the lion's share. 
Under a scheme of governmental price-fixing that sys- 
tem would be perpetuated and legalized. The true 
policy of government is to protect and preserve com- 
petition that establishments able to stand alone and 
fight their way against those now in control will spring 

234 



OTHER OBJECTIONS TO LENROOT MEASURE 

up and fairly and openly compete with the latter. 
This end is accomplished by such statutes as the Anti- 
trust Act, properly construed and enforced. 

Sections 12, 13, 14, 15, 16 and 17 all relate to court 
procedure and cover so much ground that it would 
be impracticable to discuss them in detail. It is 
deemed best to set them forth here at length and then 
discuss some of their leading features. 

Sec. 12, That whenever in any suit or proceeding, civil or 
criminal, brought by or on behalf of the Government under the 
provision of this Act a final judgment or decree shall have been 
rendered to the effect that a defendant, in violation of the pro- 
visions of this Act, has entered into a contract, combination in 
form or trust or otherwise, or conspiracy of restraint of trade or 
commerce among the several States or with foreign nations, or 
has monopolized or attempted to monopolize or combine with any 
person or persons to monopolize any part of the trade or com- 
merce among the several States or with foreign nations, an 
existence of such illegal contract, combination or conspiracy in 
restraint of trade or of such attempt or conspiracy to monopo- 
lize, shall to the full extent to which the facts and issues of 
fact or law were litigated and to the full extent to which such 
fact, judgment, or decree would constitute in any other pro- 
ceeding an estoppel as between the Government and such per- 
son, constitute as against such defendant conclusive evidence of 
the same facts and be conclusive as to the same issues of law 
in favor of any other party in any other proceeding brought 
under or involving the provisions of this Act. 

Sec. 13. That in any civil proceeding begun under this Act 
by the United States or the Attorney-General or any district 
attorney thereof, in which a judgment or decree interlocutory 
or final has been entered that the defendants, or any of them, 
have been guilty of conduct prohibited by section one, section 
two, or section three of this Act, if it shall appear to the 
court by intervening petition of any other person or persons that 
such person or persons claim to have been injured by such con- 
duct, such person or persons shall be admitted as a party to the 
suit to establish such injury, if any, and the damages resulting 
therefrom, and such person or persons may have judgment and 
execution therefor or any other relief to the same extent as if 
an independent suit had been brought under section seven of this 
Act. In the course of such proceedings the court may grant 
orders of attachment or may appoint a receiver or may take such 
others proceeding conformable to the usual practices in equity as 
to insure the satisfaction of any claim so presented and the pro- 
tection of the petitioners' rights. Nothing done under this sec- 
tion shall be permitted to delay the final disposition of said 

235 



OTHER OBJECTIONS TO LENROOT MEASURE 

principal proceeding in all other respects, and nothing contained 
in this section shall be taken to abridge the right of any person 
or persons to bring a separate and independent suit as provided 
in section seven of this Act ; but if any person proceeds both by 
intervening petition and by independent suit the court may order 
an election. 

Sec. 14. That such intervening petition or an original suit for 
the same cause under section seven of this Act shall not be 
barred by lapse of time, if begun within three years after final 
decree of judgment entered either in a civil or in a criminal 
proceeding brought by the United States, or the Attorney-Gen- 
eral or any district attorney thereof, establishing such violation 
by the defendant or defendants of section one, section two, or 
section three: Provided^ That the claim on which such interven- 
ing petition or original suit is founded was not already so barred 
at the time of the passage of this Act. 

Sec. 15. That whenever, after the Institution of proceedings 
in equity under section four of this Act, it shall appear to the 
court in any preliminary hearing that there is reason to believe, 
or upon final hearing the court shall find, that any contract, com- 
bination in the form of trust or otherwise, or conspiracy was 
entered into, existed, or exists which was, or is, in any respect 
or to any extent in restraint of trade or commerce among the 
several States or with foreign nations, and that as a result there- 
of the defendants, or any of them, have the control of supply- 
ing the market with any machine, tool, or other article, whether 
raw material or manufactured, reasonably required in the man- 
ufacture or production of any other article or for general con- 
sumption and use and that no adequate opportunity exists to im- 
mediately substitute another article therefor of equal utility, the 
court shall have power to make such order, by injunction or 
otherwise, as it may deem necessary, as will secure to purchasers 
or users of such article full opportunity to continue to acquire 
or use the same upon payment of a reasonable compensation, to 
be fixed by the court in such order, until some other adequate 
substitute can be provided: Provided, however. That in so far 
as at the time of the application for such order such machine, 
tool, or article is being supplied to any person under any contract 
the amount of compensation therefor to be paid him under said 
order shall be that actually payable in accordance with the terms 
of such contract, unless or until such contract is found or de- 
clared to be void or expires. 

Sec, 16. That whenever in any proceeding under section four 
of this Act any contract, combination, or conspiracy has been 
adjudged illegal under section one or section two of this Act 
the court before which such proceedings are pending shall have 
jurisdiction — 

(a) To partition any property owned under any contract or by 
any combination pursuant to any conspiracy (and being the sub- 
ject thereof) mentioned in section one and section two of this 
Act in severalty among the owners thereof, or groups of owners 

236 



OTHER OBJECTIONS TO LENROOT MEASURE 

thereof, and if the owners include one or more corporations, 
among the several stockholders thereof, or among groups of the 
several stockholders thereof, all in proportion to their respective 
interests. 

(b) If sales of such property are necessary or proper, either 
to pay encumbrances thereon or to re-create conditions in har- 
mony with the law to sell such property as a whole or in parcels ; 
and the court may forbid the said owners, and if the said 
owners include one or more corporations, the stockholders there- 
of, from purchasing at such sales, and may prescribe the condi- 
tions on which any purchase may be made by any persons or 
corporations whatsoever 

(c) To make such restraining orders or prohibitions as may be 
necessary or proper to re-create conditions in harmony with the 
law, including prohibitions of any acts, conduct, methods, or de- 
vices which are enumerated herein as indicating unreasonable 
restraint. 

(d) To declare void as against the defendants, or any of 
them, any contract entered into as a part of the contract, combin- 
ation, or conspiracy found to be in restraint of trade. 

The relief granted in this section shall be in addition to, and 
not exclusive of, other relief permitted by law or by this Act. _ 

Sec. 17. That whenever a proceeding in equity has been in- 
stituted under section four of this Act, any person who shall be 
injured or is threatened with injury in this business or property 
by any other person or corporation by reason of anything forbid- 
den or declared to be unlawful by this Act, and any State of the 
United States, may at any time intervene in said suit to protect 
his interests, or if the intervenor be a State, the interests of the 
citizens of such State, and may, after final decree in said case, 
petition said court for protection or redress in case of any viola- 
tion of said decree, and the court shall have power to take such 
action as may be appropriate in the premises. 



Section 12 simply, means that if the government suc- 
cessfully prosecutes the A company, under the pro- 
visions of "this Act," then if B or C or D or anybody 
else should see fit to sue it under any provision of 
"this Act," all the facts found to support the judgment 
in the Government suit are to be conclusively pre- 
sumed in favor of the plaintiff in the private suit. It 
would deprive the party defendant of his day in court. 
It would deprive him of the right to be present at the 
introduction of evidence against him. In any such suit 
for damages for over twenty dollars the defendant 

237 



OTHER OBJECTIONS TO LENROOT MEASURE 

would be substantially deprived of his constitutional 
right to trial by jury, though as a formality the jury 
would be empanelled and sworn. It would, in its 
final effect, amount to deprivation without due process 
of law in the plainest meaning of the constitutional 
prohibition. 

From what has preceded, we have a faint com- 
prehension of the number of cases that would arise, 
and the number of proceedings the Government would 
be called upon to institute and prosecute to judgment 
under "this Act." Each such case might uncover, of 
suggest numerous causes of action for private injury, 
in each of which the party defendant would be tied 
hand and foot as to every fact alleged against him, ex- 
cept perhaps the direct and immediate instrumentality 
by which the injury was inflicted and the extent of the 
injury in dollars. The new causes of action created by 
the bill are innumerable. Just think of those that 
might arise under the specification of "unfair compe- 
tition" alone, never heretofore rated or treated as a 
cause of action per se, but failing within the maxim, 
de minis lex non curat, or damnum absque injuria. 
In all such cases, if the Government had succeeded in 
its suit in making out a case, of "contract, combination 
in form of trust or otherwise, or conspiracy in re- 
straint of trade," etc., not only could the presumption 
of unreasonablenss arise against him, but he would be 
concluded in the private litigation, arising under any 
of the lettered subdivisions of Section 10, as to all liti- 
gable facts except as above noted. No even plausible 
reason has been or can be given for such a depart- 
ure, such a flagrant discrimination, in the administra- 
tion of judicial remedies. Even if the proposition were 
not palpably unconstitutional on its face, its gross in- 

238 



OTHER OBJECTIONS TO LENROOT MEASURE 

justice would at once impress any one who gave it 
unprejudiced consideration. 

Section 13 makes provisions for interventions for 
their injuries, or alleged injuries, by private parties in 
the Government's suit; allows them to prove their 
damages and to have judgment and execution therein 
with like force and effect as if they had brought sepa- 
rate actions. Having thus projected themselves into 
such a case, they would merely stand aside and hold 
hands until the Government had furnished them with 
the judgment of which they could immediately avail 
themselves under the provisions of Section 12. The 
trials of the cases of the intervenors would not really 
begin until the Government had secured its judgment. 
Then when the issues between intervenors and de- 
fendants were tried, a separate judgment would have to be 
entered for or against each intervener, according to the 
result. We would then have the anomaly of several 
judgments in the same case, one principal and one or 
more offshoots, no two between the same parties or 
based upon any privity of interest or action. The one 
suit is before the chancellor invoking an equitable 
remedy; the other at law requiring a jury trial, or as 
the law expresses it, the cases require different places 
of trial. In the one case the plaintiff seeks to stay in- 
jury to every one of a hundred million or more of per- 
sons; in the other merely the injury to one of them is 
alleged for which he seeks damages assessable by a 
jury. The jurors are to be precluded and forestalled 
as to all the facts and issues previously passed upon 
by the chancellor. 

The whole thing is so grotesque, so absurd, that one 
may well wonder how it ever came to be seriously 

239 



OTHER OBJECTIONS TO LENROOT MEASURE 

proposed or advocated by a member of the American 
bar. 

Section 13 also seeks to empower the court to ap- 
point a receiver "in any civil proceeding begun under 
this Act by the United States or the Attorney-General 
or any district attorney thereof in which a judgment 
or decree, interlocutory or final, has been entered that 
the defendants, or any of them, have been guilty of 
conduct prohibited by section one, section two, or 
section three of this Act," etc. (the same to constitute, 
if this bill passes the Sections 9, 10 and 11 of the Anti- 
trust Act already discussed). 

For convenience, we may discuss together this re- 
ceivership proposition and that for judicial partitions 
of property provided for in Section 16. This idea of 
receiverships over and partitions of property probably 
springs from certain detached expressions of the Su- 
preme Court in disposing of the case of United States 
vs. American Tobacco Company. 

Where do we find, in this statute, any authority for 
those suggestions in the Standard Oil and Tobacco 
cases of possible receiverships and complete stoppage 
of interstate commerce? The important question here 
is now as to the power of Congress to prescribe receiv- 
erships, partitions and other interferences with the 
possession and use of property provided for in the Len- 
root Bill. The remedies thus to be enforced are in 
civil cases. It must be admitted that there is scarcely 
a limit beyond which the Government could not go in 
the infliction of penalties and forfeitures by way of 
punishment for crime. But it has been always simpler 
and more effective to measure the punishment in dol- 
lars which may be collected on execution or imprison- 
ment to coerce payment. 

240 



OTHER OBJECTIONS TO LENROOT MEASURE 

What we are now considering is the power of Con- 
gress to provide for the sequestration and deprivation 
of private property otherwise than as a punishment for 
crime. 

First then as to the execution of a decree rendered 
against a defendant by the appointment of a receiver. 
Those who speak so fluently about receiverships have 
probably never taken the trouble to examine either the 
nature and true function of a receivership, or the 
source of jurisdiction to appoint one. A receiver is 
powerless, and his appointment would be abortive, un- 
less he could take the defendant's property entirely 
from his possession, and either convert it into money 
or hold it until the final disposal of the case and entry 
of final judgment. Next, as to the jurisdiction to ap- 
point a receiver. It is purely equitable, but courts of 
equity have no more a jurisdiction in a civil action to ap- 
point a receiver as a punishment than have courts of 
law. A receivership is preservative; never destructive. 
The jurisdiction is exercised to prevent waste and de- 
privation pending litigation, on application of a party 
having an interest in it, as mortgagee, cestui que trust, 
or creditor who has already a judgment or is entitled 
to enforce an equitable preference in some other form. 
It requires no argument to show that this remedy 
could not be resorted to on behalf of the Government 
unless provision were made for the compensation of 
corporations and others so dealt with, because a re- 
ceivership which necessarily deprives a defendant of 
the possession and use of his property is undoubtedly 
a "taking" within the meaning of the term as used in 
the constitution. 

Equally would a partition of the defendant's prop- 
erty constitute a taking. Section 16 provides for the 

241 



OTHER OBJECTIONS TO LENROOT MEASURE 

partition, and, if necessary, the sale of the defendant's 
property in the process of creating conditions in con- 
formity to law. The objections to receiverships apply 
here with increased force. Either remedy put in force 
would constitute an appropriation of private prop- 
erty. If the use be considered public, then compensa- 
tion must be provided as in the exercise of the power 
of eminent domain. But it is difficult to discover any 
public use, and, if there be none, then the process 
could not be resorted to even if provision were made 
for compensation. 

Section 14 would save rights of action against the 
bar of statutes of limitation and need not be further 
noticed. 

Section 15 makes provision as to disposal of certain 
property rights against which substantially the same 
objections lie as against receiverships and partitions. 
It provides, among other things, for compulsory leas- 
ing under judicial power and supervision. The ob- 
vious first question is as to the province of Congress 
to confer and of the judiciary to exercise the power to 
compel persons to alter valid contractual relations al- 
ready formed and enter into new and different con- 
tractual relations, and the first thought is that it can- 
not be done. The fact that defendant has been adjudged 
to have been a party to a contract, combination or conspir- 
acy in restraint of trade, would not have the effect to in- 
validate his contracts made in the course and conduct 
of his business. That is no longer an open question 
upon the authorities, notwithstanding that this sec- 
tion appears to have been projected upon the appo- 
site theory. 

The first lettered clause of Section 16 has been al- 
ready noticed. Subdivision ''{h)" prohibits the stock- 

242 



OTHER OBJECTIONS TO LENROOT MEASURE 

holders of a partitioned or otherwise dismembered 
corporation from purchasing its property at sales 
thereof occurring under the proceedings prescribed by 
the bill. It seems sufficient to remark that no inter- 
state commerce, or other substantial reason for the 
prohibition can be assigned. 

Section 17 would authorize intervention by private 
parties alleging injury in suits in equity brought un- 
der the provisions of Section 4 of the Anti-trust 
Act. It would also authorize interventions by indi- 
vidual states of the Union. Part of the preceding dis- 
cussion is applicable to the proposed interventions by 
private parties; and with reference to interventions 
by a State to protect an interest of one or more of its 
citizens, that would appear to be entirely unnecessary, 
since the United States would be already in court to 
protect the interests of all the citizens of all the 
States. 

Mr. Louis D. Brandeis, of Boston, filed with the 
Judiciary Committee of the House, an elaborate brief 
intended to meet and answer all criticisms upon, and 
objections to, the bill. His explanation of its pur- 
poses and provisions may be passed over. Speaking, 
however, of Section 9, he says that it does not alter the 
substantive law, as the Sherman Act was construed by 
the Supreme Court in the Standard Oil Company and 
American Tobacco Company cases. No one has 
claimed that it does make any such change ; the ob- 
jection is that it perpetuates the effect of those de- 
cisions by a legislative construction and recognition. 

In answer to the objection that this legislation would 
invalidate the Anti-trust Act as a criminal statute, his 
only reply is that the same objection would lie to that 
act itself as construed by the court in the two cases 

243 



OTHER OBJECTIONS TO LENROOT MEASURE 

mentioned. His reason will not be satisfactory to any- 
one except those who fear the enforcement of the penal 
clauses. But by way of confession and avoidance, he 
asserts that as a criminal statute, the courts subsequently 
upheld the act, and cites two decisions of inferior 
federal courts on demurrers, and the ruling of the 
Supreme Court in an application for a writ of habeas 
corpus. The application was made before the petitioners 
had been tried, and the Court merely ruled that it was 
premature. After Mr. Brandeis' brief was filed, Attor- 
ney-General Wickersham conceded the invalidity of the 
act as a criminal statute. His changed views were due, 
in large measure, to acquittals of the defendants by 
juries under the court's instructions in the two cases 
referred to by Mr. Brandeis. 

He then offers an answer to the objection that Con- 
gress cannot place upon the defendant the burden of 
proving that his restraint of trade is reasonable. But 
nothing that he says by way of answering argument, 
nor any authority cited by him, is to the point. He says: 
"Generally speaking, in all cases of affirmative defenses, 
in criminal as well as civil cases, the defendant has the 
burden of proof. (12 eye. 380, 381) * * *. Similarly, 
if a statute makes certain acts criminal, but provides 
exceptions, the defendant ordinarily must establish that 
he is within the exceptions (State 2 Watson 31, Atl. 
1040)." 

No one ever before suggested that the Supreme Court 
had inserted an exception in the statute. If we should 
write the word "unreasonable" before the word "re- 
straint," and make it read "Every contract combination 
in the form of trust or otherwise, or conspiracy, in un- 
reasonable restraint of trade or commerce among the 
several States, or with foreign nations, i^ hereby de- 

244 



OTHER OBJECTIONS TO LENROOT MEASURE 

clared to be illegal," and then write into the penal clauses 
the qualifying words, "as above defined," we would have 
before us the result of the new construction by the 
court, as Mr. Brandeis interprets it. It has merely 
narrowed the definition by the introduction of a qualify- 
ing adjective. The Government is as much bound to 
prove the kind of restraint placed upon commerce, as 
it is to identify the individual or corporation placing it, 
or as it would be in a case for smuggling, to prove the 
dutiable grade or character of the merchandise involved. 
And it is almost impossible to conceive of a case that 
would be so presented in court as not to show on the 
facts presented by the Government, whether the re- 
straint was reasonable or unreasonable. Therefore, 
there is no room for any such defense, affirmative or 
of other kind; there is no such defense. The question 
would be one of law arising upon the facts. What the 
defendant would present in every such case would be 
an argument, not a defense, properly so called. 

The proposition or theory of affirmative defenses is 
far-fetched. He says, very truly: "The case of Com- 
monwealth V. Boyer (7 Allen, Mass. 306) illustrates 
the principle." That was a prosecution under a statute 
which provided that "whoever having a former husband 
or wife living * * * marries another person, shall 
* * * be deemed guilty of polygamy," and a separate 
section provided that "the provisions of the preceding 
section shall not extend * * * to any person legally 
divorced from the bonds of matrimony." The last quo- 
tation refers not to defensive but exculpating matter. 
Resting upon an affirmative independent proposition, 
and upon a fact peculiarly within the defendant's knowl- 
edge, the same rule applies as where a defense of autre- 
fois acquit, or autre-fois convict is relied on. 

245 



OTHER OBJECTIONS TO LENROOT MEASURE 

This seems the proper place to notice his reference 
in oral argument before the House Judiciary Committee 
on this bill (Trust Legislation, Serial No. 2, page 15) 
to the Cummins burden of proof Amendment to the 
Amendments to the Interstate Commerce Act of 1887, 
adopted in 1910. He there said: "That provision, that 
mere changing the burden of proof, where you once have 
shown that combination exists, is an idea which has been 
borrowed from the acts to regulate commerce. The act 
of 1910 provided that when a railroad raises a rate, the 
burden of proof should be on the railroad to show that 
the increase in rates was reasonable." 

The statement is slightly incorrect. The provision 
was not that the carrier should have the burden of 
showing the reasonableness of the increase, but the rea- 
sonableness of the increased rate. The discrepancy is 
important; hence, the illustration is misleading. The 
courts have held that the question of what is the 
reasonable rate is one of fact. When a new rate sheet 
is filed with the Commission, showing the increase of a 
rate, the question is: "Why have you increased a rate 
previously fixed by you with knowledge of all the facts ?" 
The facts justifying any rate are peculiarly within the 
knoweldge of the carrier, and there is a natural presump- 
tion that any rate higher than that previously fixed by 
it is too high. At any rate, the carrier there presents 
an affirmative proposition with a presumption against 
him, and it is in accordance with justice and established 
principle that the burden of proof should rest upon him. 
But here, not having any standard of fact, the ques- 
tion is one of law, the question being as to what legal 
color or aspect the facts proved by the Government 
shall bear. 

With reference to attacks upon the constitutionality 

246 



OTHER OBJECTIONS TO LENROOT MEASURE 

of the various provisions of Section 10, which the Len- 
root Bill would add to the Anti-Trust Act, Mr. Brandeis 
says, in effect, that it is not really what it appears to 
be, a statute shutting off a party from making his de- 
fense in certain cases, but the enactment of substantive 
law, covering certain offenses. That would be true if 
the section totally eliminated the element of reasonable- 
ness or unreasonableness from the statute for all cases. 
But as it does not, we must have regard to the form 
in which it appears. And in constitutional law, matters 
of form often must be given consideration. It would 
not usually affect a defendant's interests in the slightest 
degree whether he had an opportunity to read or had 
read to him the indictment or other charge, and yet that 
ceremony is an essential part in due process of law. 

But why has the Section been so framed as not to 
apply to those large restraints as to which the people 
are most concerned, such as railroad traffic agreements 
and price agreements, such, for instance, as those shown 
in the Steel Trust investigation? 

The form of Section 10 is such that the conclusive- 
ness might just as well apply to the identity of the 
accused party as to the element of the offense selected. 
His arguments in support of the constitutionality of 
Section 11 are evasive and inconclusive. For instance, 
in answer to the objection that the fact that a person 
or corporation does business under a name other than 
his or its own name, or conceals or misrepresents the 
ownership or control of the business, etc., has no 
tendency to prove that the person engaged in that busi- 
ness restrains trade unreasonably, he says: "It is com- 
mon knowledge, however, that one of the most effective 
methods of unfair competition is that of the fake inde- 
pendent." But a corporation or individual may fake 

247 



OTHER OBJECTIONS TO LENROOT MEASURE 

or falsely claim independence for any one of a variety 
of reasons, either of which, we might be ready to agree 
with Mr. Brandeis, is reprehensible. But the question 
would remain whether such faking constituted restraint 
of trade. And we still cannot see that, merely because 
in some previous case tried in the courts a defendant 
resorted to the "independent" dodge, a defendant in all 
future cases, merely because he did his business in a 
name other than his own, should or could have cast 
upon him the burden of exculpating himself from the 
charge of having restrained interstate commerce, not- 
withstanding that it might have been incidental to an 
interstate transaction. 

His arguments in support of the other clauses of 
Sections 10 and 11 are no better, and will not be further 
noticed. 

It is undoubtedly correct when applied to conduct 
resulting in actual restraint of trade to say that the 
intent need not be shown; in other words, the intent is 
immaterial where the result aimed at has been reached 
and a restraint has actually been placed upon trade. 

Every lettered sub-division of Section 10 but one, 
(f), deals not with consummated restraints, but at- 
tempts; and the same is true of sub-division (b) of 
Section 11, though in this instance the expression slightly 
varies. In a case of actual crime, the party is, as a gen- 
eral rule, deemed or presumed to intend the natural 
result of his act. But this rule seldom if ever prevails 
where an attempt is also penalized and the charge is for 
an attempt. The rule was stated by Justice Holmes in 
Swift & Co. V. United States (196 U. S. 397), a case 
brought under the Anti-trust Act, as follows: "Intent 
is almost essential to such a combination, and is essential 
to such an attempt. Where acts are not sufficient in 

248 



OTHER OBJECTIONS TO LENROOT MEASURE 

themselves to produce a result which the law seeks to 
prevent — for instance, monopoly — but require further 
acts in addition to the mere forces of nature to bring 
that result to pass, an intent to bring it to pass it neces- 
sary in order to produce a dangerous probability that 
it will happen. (Commonwealth v. Peaslee, 177 Mass. 
267, 272.)" 

This quotation is peculiarly applicable, because not 
one of the acts specified in the bill would necessarily, 
and of its own natural tendency, restrain trade if con- 
summated. 

It is important in this connection to note that the 
parts of the bill now referred to attempt the creation 
of a new offense in a totally impracticable way. It is 
attempted to create the offense of an attempt to do one 
thing out of things fully done which have resulted in 
something very different. As well might it be provided 
that anyone attempting to break into a house by obstruct- 
ing the public highway shall be conclusively presumed 
to be guilty of unlawful house-breaking. These pro- 
visions would practically amend the Anti-trust Act by 
creating this new offense of an attempt to restrain com- 
merce. In framing the present Act, Congress under- 
stood the futility of constituting the attempt at restraint 
an offense. It was only when acts assumed the per- 
ceptible form of attempting to monopolize commerce 
that it was deemed practicable to give a civil remedy 
against, and attach penal consequences to, acts and 
courses of conduct. As well attempt making treason 
out of something short of an overt act. Hence, if the 
acts and conduct specified in the bill are to be made 
criminal, it will have to be done otherwise than as here 
attempted. 

In further advocacy of the policy and constitutionality 

249 



OTHER OBJECTIONS TO LENROOT MEASURE 

of Sections 12 and 13 of the bill, Mr. Brandeis pursues 
first a very general, and then a very technical line of 
argument. Indeed the constitutional obstacles seems to 
impose a hardship upon parties in general by combina- 
tions, but that cannot be helped. That such obstacle 
exists is shown in the preceding discussion of the Len- 
root Bill, which will not be here repeated. As Mr. 
Brandeis truly says, Congress may enact rules of prac- 
tice and procedure, including rules for the admission 
of evidence, but no such rule could invade any constitu- 
tionally protected right. Congress could, however, re- 
quire the record in the Government suit to be received 
in evidence in private suits, the effect of the evidence 
to rest with the jury, which is a very different proposal 
from one which involves a deprivation of the right of 
trial by jury, in actions at law, by making the judgment 
in the Government suit conclusive against a party. 

To answer the objections to Section 15, which would 
compel litigants to enter into new contracts, Mr. 
Brandeis called attention to partitions of property by 
equitable decrees in certain cases and to certain powers 
over public service corporations in certain cases. The 
partition and sale of property in order to secure equitable 
division among co-tenants or co-heirs is the exercise of 
the equity court's ordinary jurisdiction. And the powers 
exercised by the Government, first, through its legislative 
department, and finally, through courts and court offi- 
cers over public service corporations, has no place where 
dealing with individuals and private corporations, not 
charged with public duties and responsibilities. But the 
things here proposed could not be constitutionally au- 
thorized and done even in the case of a quasi-public cor- 
poration, unless in the exercise of the power of eminent 
domain. The Federal Government has no interest in 

250 



OTHER OBJECTIONS TO LENROOT MEASURE 

or power over the ownership or disposal of private 
property, and can only regulate its use where the use 
interferes with the exercise of a power conferred by 
the Constitution. 

Seeing the ineptness of the illustration, Mr. Brandeis 
shifts his ground and says: "Congress could unques- 
tionably enact that all persons engaged in interstate com- 
merce shall be subject to the obligations of public service 
corporations." This is so palpably a non sequitur that 
it seems unnecessary to give it further notice. 

Such being the case, it is needless to discuss his de- 
fense of the specific methods for the execution of such 
decrees provided for in Section 16. The defense of 
the provision authorizing individual States to join in 
Government cases arising under the Anti-trust Act 
found in Section 17, involves several false assumptions 
and descends to absurdities. A State could only be ad- 
mitted on the Government's side as a matter of policy, 
on the assumption that the officers of the Federal Gov- 
ernment would be unable or unwilling to take care of 
public interests. It could only be admitted to represent 
aggrieved private parties, having their own counsel for 
the purpose of relieving them of part of the expense. 
But for either of these purposes, the Constitution and 
statutes of any State in the Union that wished to partici- 
pate in a Federal Court investigation, in which the State 
as a municipal corporation, wished to participate would 
have to be changed. It is beyond the power of a State 
officer anywhere to use the name of his State in a foreign 
jurisdiction, to participate in litigation to which the State 
could not by its constitution and laws, properly become 
a party. 

The foregoing criticism of the Lenroot Bill has been 
extended at great length. If any apology for its length 

251 



OTHER OBJECTIONS TO LENROOT MEASURE 

be needed, the answer is that it was thought worth 
while to present the criticism in view of the powerful 
support it is receiving, and if done at all, it should be 
done thoroughly. 



252 



CHAPTER XII 

PROPOSAL OF MR. SMITH FOR FEDERAL 
CONTROL OF STATE CORPORATIONS 

This is a revision of the bill introduced in the Second 
Session of the 62nd Congress by Senator WiUiams. 
After its revision it was introduced in the House by 
Mr. Smith of Texas and referred to the House Com- 
mittee on Interstate and Foreign Commerce. Mr. 
Smith, a leading and influential representative, has never 
publicly advocated the measure and may not have care- 
fully examined it. Senator Williams and others have 
given it very earnest support before committees and 
otherwise. 

The title, enacting clause and first few lines read 

as follows: 

A BILL 

To PRESCRIBE THE CONDITIONS UNDER WHICH COR- 
PORATIONS MAY ENGAGE IN INTERSTATE COMMERCE AND 
TO PROVIDE PENALTIES FOR OTHERWISE ENGAGING IN 
THE SAME. 

Be it enacted by the Senate and House of Representatives 
of the United States of America in Congress assembled. 
That no corporation shall engage in commerce between the 
States or in the District of Columbia, by the purchase, sale or 
consignment of any article of commerce, or otherwise, directly 

or indirectly — , . ...... . . 

First. After the passage of this Act, if it is incorporated 
on or after January 1st, 1913, or after January 1st, 1914, if it 
is incorporated prior to January 1st, 1913, it is orgamzed 
under laws or with a charter that 

253 



CONTROL OF STATE CORPORATIONS 



(a) State the business in which it is authorized to engage 
and the location of its executive office ; and provide that it 
shall have only such powers as are incidental to such business, 
and shall not have any power to do any act or thing in 
restraint of trade or to monopolize trade, or to do anything 
outside of the State of its incorporation which it is not permitted 
to do therein; 



The first section contains other lettered clauses (b) 
to (h). 

To avoid circumlocution and repetition, what the bill 
would require to be provided in the articles of incorpora- 
tion, just as if Congress were creating the corporations 
and imposing the conditions upon them, will be stated, 
because that is the legal effect of it. The articles shall 
provide that "the corporation state the business in which 
it is authorized to engage and the location of its execu- 
tive office; and provide that it shall have only such 
powers as are incidental to such business, and shall not 
have any power to do any act or thing in restraint of 
trade or to monopolize trade, or to do anything outside 
of the State of its incorporation which it is not per- 
mitted to do therein" ; also that "no person or persons 
shall be or act as a stockholder or member thereof, or 
be eligible as an officer or a director thereof : 

(1) who is not an actual beneficial owner of stock 
in his own name and right, unless he holds such stock 
as trustee and the nature and beneficiaries of such 
trust are fully stated upon the books of the corporation. 

(2) who is engaged in any substantially competing 
business, or in any business of substantially the same 
kind, carried on in the same territory, or is a stock- 
holder, officer or director of any corporation or asso- 
ciation engaged in or having an interest through stock 
ownership or otherwise in any such business, or is the 
agent or trustee with respect to such stock of any per- 

254 



CONTROL OF STATE CORPORATIONS 

son engaged in any such business, or of any stock- 
holder, officer or director of any such corporation. 

"(3) who is a corporation, association or partner- 
ship engaged in any business, including the business 
of a holding company, but excluding the business of 
banking, insurance, education of or (administering 
estates and executing testamentary trusts" ; also that 
"all dividends declared on any stock shall be forfeited 
to the corporation unless such stock shall at the time 
such dividend is declared or within ten days thereafter 
stand in the name of a person entitled to be and act as 
a stockholder of such corporation, as aforesaid" ; also 
that "a transfer of any stock to a person not entitled 
to be a stockholder of the corporation as aforesaid shall 
be void, and that any stock standing in the name of any 
such person for a period of six months, unless the same 
be occasioned by some excusable inadvertence or dis- 
ability, shall be forfeited to the corporation"; also that 
"none of said restrictions shall be taken to affect the 
security or rights of any secured or judgment creditor, 
including any corporation, association or trustee, nor to 
prevent such creditor from acquiring or voting any stock 
pursuant to the terms of any pledge thereof or to a sale 
thereof under any lien or judgment, for a period not 
exceeding one year as may be permitted by a court hav- 
ing jurisdiction thereof" ; also that "all its stockholders 
shall have an equal right to vote according to the num- 
ber of shares held by them, respectively at all meetings 
and for all directors, subject to any general limitation 
on the number of votes that may be cast by a single 
stockholder"; also must "contain a statement of the 
amount of capital with which such corporation will 
carry on business, and provide that such amount shall 
not be less than the total par value of its capital stock 

255 



CONTROL OF STATE CORPORATIONS 

issued therefor, including any stock issued without par 
value at not less than five dollars per share, and per- 
mitting the issuance of said stock for property only 
when the value of such property has been determined 
according to the fact to be not less than the par value 
of such stock, as aforesaid upon competent and specific 
proof under oath filed in a designated public ofiice" ; 
also that "any excess capital over and above the par 
value of capital stock outstanding at any time, including 
any stock issued without par value at not more than 
one hundred dollars per share, shall be deemed a sur- 
plus of such corporation, and that such surplus shall 
not be permitted to exceed fifty percentum of the 
amount of such capital stock, and that its indebtedness 
shall not be permitted to exceed its outstanding capital 
and surplus" ; also that "such corporation is formed 
with a view to engaging in commerce between the 
States subject to any requirement that may be imposed 
by Congress as a condition of its right to engage in such 
commerce, and that its charter or governing laws may 
be amended at any time to conform to any such require- 
ment, and that the rights and interests of its stock- 
holders, officers, directors and other persons, in its 
assets, offices and management are held subject to any 
amendment that may be made for such purpose." 

The first section then contains paragraphs "second" 
to "seventh" imposing conditions pertaining to incor- 
porating, organizing and certifying other than and addi- 
tional to those pertaining to the contents of the articles, 
all relating back to the introductory clauses and mean- 
ing that these requirements must also be met in order 
to complete and consummate the right to engage in inter- 
state commerce, and that a violation or non-observance 

2^6 



CONTROL OF STATE CORPORATIONS 

thereof would involve a forfeiture of the right. These 
paragraphs of Section 1 read as follows : 

Second. After January 31, 1914, unless a copy of its certificate 
or articles of incorporation or association and proof, by affidavit 
of an executive officer, showing its compliance with the require- 
ments of this section and of its charter has, preceding any such 
act or commerce, been filed in the office designated by law of the 
State by which it is incorporated, and also in the office of the 
United States Bureau of Corporations. 

Third. After the passage of this Act, if it purchases or if, 
after January 1, 1914, it holds the stock of any corporation or 
association owning, operating or controlling, through stock own- 
ership or otherwise, any properties in the United States or 
carrying on its business therein. 

Fourth. After the passage of this Act, if it issues stock 
for property or services, unless the value thereof has been 
determined upon competent and specific proof under oath to be 
not less than the par value of the stock issued therefor, or if 
such stock is issued without par value, to be not less than a 
value of five dollars per share of such stock, which determina- 
tion and proof shall be filed in a public office designated by law 
of the State by which it is incorporated, or in the office of the 
Bureau of Corporations of the United States. 

Fifth. After the passage of this Act, if any person, who, 
under the laws or charter required by Paragraph First, would 
not be entitled to be or act as a stockholder, shall vote by 
proxy or otherwise, any stock therein or be or nominate or 
elect a director or officer therein ; Provided, That for any vio- 
lation of this paragraph prior to January 1, 1914, only a person, 
corporation, or association voting any such stock, or giving a 
proxy thereon (except to enable such corporation to amend its 
charter or to reorganize to conform hereto), or acting as, 
becoming, nominating, or electing any such director or officer 
(except to fill vacancies in any such office) shall be punished 
hereunder or affected hereby : Provided, also. That this paragraph 
shall not apply to any corporation incorporated prior to Jan- 
uary 1, 1913, if its outstanding capital stock does not exceed 
ten million dollars, unless it is controlled or operated by a 
corporation or association having a larger capital, or unless it 
is one of several corporations heretofore or hereafter disin- 
tegrated or incorporated pursuant to any decree in any pro- 
ceeding under the Anti-trust Act of July 2, 1890. 

Sixth. After the passage of this Act, if a majority of its 
stock be held or owned, directly or indirectly, by any one or 
more persons who under the charter or laws required by para- 
graph first would not be entitled to be or act as a stockholder : 
Provided, That for any violation of this paragraph prior to 
January 1st, 1914, only a person, corporation or association 
hereafter purchasing any such stock, directly or indirectly, or 

257 



CONTROL OF STATE CORPORATIONS 



holding it directly or indirectly, after July 1st, 1913, shall be 
punished heerunder or affected hereby. 

SevenA. After the passage of this Act, if it, directly or 
indirectly, of itself or in connection with others, destroys or 
seeks unfairly to stifle competition in any part of the United 
States in the manufacture, production, mining, purchase, sale 
or transportation of any articles of commerce not the subject 
of any patent, copyright or trade-mark held by it, either by 
making or affecting exclusive contracts, rights or privileges 
relating thereto, by restricting its customers or other persons 
with regard to price, territory, or otherwise, in freely buying, 
selling, or transporting any such article, by securing the monop- 
oly or control of raw material or sources of supply, or of any 
means of transportation, or of any business connected therewith 
by temporarily or locally reducing prices with intent to stifle 
competition, by accepting rebates, or by any other act, device, 
or course of business that is unfair and tends to secure a monop- 
oly or an unfair advantage and unreasonably and unfairly to 
destroy competition. 

The balance of the bill is vindicatory or remedial, ex- 
cept that it contains a few other and incidental matters. 
As it would be difficult to make a synopsis of their pro- 
visions, Sections 2 to 9 inclusive are here inserted in 
full: 

Sec. 2. That every contract made in violation of this Act 
shall be void, and no corporation or association if engaged in 
interstate commerce shall, after January 1st, 1914, bring or 
maintain any suit or proceeding in any court of the United 
States unless it is organized, conducted and managed as re- 
quired by Section 1, nor shall this provision prevent the re- 
moval of any such suit or proceeding to such courts where such 
defense may be available to the defendant. 

Sec. 3. That the prohibition of Section 1 and Section 2 
shall apply to any association membership in which is represented 
by shares, and the word "association" used in this Act shall 
include any joint stock company, business, trust, estate, or any 
form of association used for business purposes ; but said pro- 
hibitions shall not apply to any corporation or association not 
engaged in business for profit or engaged exclusively in any 
one or more of the following businesses : Education, a railroad 
or other common or public carrier of property or persons or 
messages, banking, insurance, the supply of water, light, heat or 
power ; or engaged exclusively and independently in any busi- 
ness or businesses, except that of a holding company, the 
substantial bulk of which is carried on in foreign countries or 
exclusively in any one State, and which does not involve the 
tiansmission of goods from one State to another, nor the pur- 
chase, sale, or consignment of articles commonly the subject 

258 



CONTROL OF STATE CORPORATIONS 

of commerce between the States and actually intended for or 
becoming the subject of such commerce. 

Sec. 4. That no person or persons shall form, operate, or act 
as or for a corporation or association for the purpose or with 
the effect of violating this Act, or conspire thereto and of 
themselves or by conspirator do any act or thmg to effect such 
conspiracy. 

Sec. 5. That every corporation, association, or person vio- 
lating this Act shall be subject, upon conviction thereof, in 
case of a corporation or association to a fine not exceeding 
ten percentum of its capital stock or (except for a violation of 
paragraph six of Section 1) to a perpetual injunction against 
engaging in interstate commerce, or both, and in the case of a 
person to a fine not exceeding ten thousand dollars, for each 
such violation, and if the violation is willful with intent to 
defraud or to create a monopoly or unfairly to stifle competi- 
tion, to such fine and imprisonment not exceeding five years. 

Sec. 6. That the Act of February eleventh, nineteen hundred 
and three, relative to the expedition of certain quits of equity, 
and sections four and five of the Act of July second, eighteen 
hundred and ninety, known as the Sherman Anti-trust Act, 
shall apply to all proceedings and suits in equity under this Act. 
Sec. 7. That any corporation or association organized, con- 
ducted and managed as required by section one, shall, after the 
passage of this Act, be entitled to engage in commerce between 
the States and in the District of Columbia, and to carry on its 
authorized business relative to such commerce in any part of 
the United States, subject to the provisions of this Act and 
to all present laws of the United States and to future Acts of 
Congress, and to the general laws and taxing powers of any 
State in which it may do business. 

Sec. 8. That nothing in this Act shall be taken to prevent 
any secured or judgment creditor, including a corporation or 
association and a trustee under any corporate mortgage or deed 
of trust, from acquiring or voting any stock sold pursuant to 
the enforcement of any such lien or judgment for a period 
not exceeding ninety days, or for a longer period not exceeding 
one year if permitted by a court having jurisdiction thereof. 
Nor shall anything in this Act be taken to prevent the holding 
of any pledgee or trustee under any mortgage or deed of trust 
given prior to January 1, 1913, of any stock deposited as col- 
lateral thereunder, unless and until the indebtedness secured 
thereby may be payable or redeemable, or such stock subject 
to release from such lien, by substitution of collateral or 
otherwise ; nor to prevent the application of the hole or part 
of any dividends thereon to the payment of such indebtedness, 
according to the terms of any such mortgage or deed of trust, 
or of any agreement or apportionment between different stocks 
so deposited that may be made to secure such indebtedness ; 
nor to prevent the voting or use of any such stock for such 
purpose ; but if and to the extent that any such stock is owned, 

259 



CONTROL OF STATE CORPORATIONS 

held, purchased, or acquired, or the right to vote thereon, or 
to give, demand, or receive a proxy thereon or to act as the 
holder thereof, or to receive or use any dividends thereon, ex- 
cept as aforesaid, is retained or acquired by any person, cor- 
poration or association, other than such pledgee or trustee, such 
owning, holding, purchase, acquisition, right, or the exercise 
thereof shall be within the provisions of this Act. Nor shall 
anything in this Act be taken to prohibit any provision in the 
charter of any corporation or association in accordance with 
this section. 

Sec. 9. That nothing in this Act shall be held or construed 
to supersede or repeal the Act approved July 2nd, 1890, entitled 
"An Act to protect trade and commerce against unlawful re- 
straints and monopolies," or any of the provisions thereof. 

It would require a large volume, indeed it might re- 
quire several volumes, to set forth the full legal effect 
of the enactment of this bill. Such a volume would be 
very difficult reading, no matter how talented its author. 
And such a discussion would scarcely touch the economic 
changes wrought by such an enactment. This should 
alone be held a fatal objection to the bill, in the absence 
of a vital present necessity for its passage. It will be 
sufficient for present purposes to point out some of the 
important results from its enactment, enforcement, and 
practical operation. This of course is aside from consti- 
tutional objections that have been and will be urged 
against the whole scheme of the bill. 

Many well intentioned and able men are just at 
present moved by an irresistible impulse to find and 
formulate and get enacted reformatory measures ; and 
they begin by framing bills and having them introduced. 
This is no reflection on those Representatives and 
Senators who introduce them and who go upon the 
theory that when one presumably qualified has a legis- 
lative proposition he is entitled to a hearing on, and 
consideration of it. 

At the very threshold of this question is that of the 
real nature, origin and meaning of interstate commerce, 

260 



CONTROL OF STATE CORPORATIONS 

to which question the draftsmen of this bill appear to 
have given little attention. But an earnest and careful 
study of that question should constitute the most impor- 
tant preparation for such service. 

The regulation of commerce is the making of rules or 
laws for commerce, and the term is just as broad as the 
power to regulate it, but no broader. Therefore any 
act of Congress which is not a regulation, that is to say, 
a regulation of that commerce which is interstate, is not 
a regulation at all, but an interference with private 
affairs which are either constitutionally protected by 
express language, or exclusively under State control by 
implication, and therefore exempt. In view of these 
obviously sound propositions, it is not difficult to see 
that the duty prescribed or prohibition imposed by the 
bill does not constitute such a regulation. 

It is not within the power of Congress to bring a 
subject within its sphere of power by new definitions; 
that is to say, the mere fact that an act is passed on a 
subject on the assumption that such subject is embraced 
within the definition does not enlarge the definition. The 
definition under the Constitution abides with the courts. 
(Lottery Cases, 188 U. S. 367, per Brewer, J.) 

There are numerous incomplete, imperfect and frag- 
mentary definitions of interstate commerce to be found 
in the decisions, but not one that is comprehensive. A 
correct statement drawn from many judicial utterances 
and decisions support, however, the following con- 
clusions. Interstate commerce has two meanings, the 
one abstract and general, the other concrete and definite. 
That within the general meaning is protected by the 
courts by virtue of the self-enforcing constitutional pro- 
vision. In the concrete and definite sense, in other 
words, in its actual movement, it may be regulated by 

261 



CONTROL OF STATE CORPORATIONS 

Federal statutes. Any given transaction may be made 
up of many minor transactions, but each interstate or 
international commercial transaction, whether of trivial 
or great magnitude, is of national import and jurisdic- 
tion, while all others are exclusively within State sov- 
ereignty, regardless of the gravity or extent of their 
separate or combined effect. Commerce; in any such 
sense as to call for Congressional regulation, cannot 
come into existence without an exercise of the will 
power of man, nor does any such thing exist in the 
absence of action and movement of men or of agencies 
set in motion by them. For purposes of congressional 
regulation the sphere of interstate commerce without 
transportation or transmission, either actual or contem- 
plated, may be compared to a vacuum,. There is no 
actual or operative interstate commerce until transpor- 
tation has begun. (Coe v. Errol, 116 U. S. 517; Addy- 
stone Pipe Co. Case, 175 U. S. 211.) A contract be- 
tween parties residing and doing business in different 
States, and though it may contingently involve inter- 
state shipments, is not a transaction in interstate com- 
merce. (Ware & Leland v. Mobile County, 209 U. S. 
405.) 

With this knowledge at hand, we turn to the general 
principles of law governing private corporations which 
are the same pro hac vice in Federal and State juris- 
dictions. A corporation is a legal unit. We have here 
nothing to do with inter se rights. The latter are essen- 
tially personal and local. The relations between stock- 
holders and between them and their corporations can 
never properly raise a question of congressional power. 
Federal legislation unless it relate merely to equitable 
procedure must necessarily deal exclusively with the 
legal entity. The fact that a corporation stands for and 

262 



CONTROL OF STATE CORPORATIONS 

represents the equitable interests of stockholders is un- 
important in this connection. Except in cases of diverse 
residence, the Federal courts have no ordinary juris- 
diction of disputes between individuals as members of, 
or stockholders in a corporation. A federal question 
may be incidentally involved in such litigation, but that 
is not here to the point, since the point here is whether 
the bill if passed would raise any federal question, that 
is, whether it would be constitutional; and a begging of 
the question by assuming that internal corporate re- 
lations are interstate commercial matters is not per- 
missible. 

We may turn to the acts, proceedings and compacts 
whereby a corporation is created under State laws, and 
search in vain for anything constituting an interstate 
transaction or subject. Without an act of State sov- 
ereignty conferring corporate capacity, those acting to- 
gether in a common name would constitute a mere volun- 
tary association, a common law copartnership, although 
they issued stock to represent their respective interests. 
The only differences between that and a corporation are 
continuity of existence under the name selected, along 
with certain other rights of no distinguishing impor- 
tance. So that in this connection the status of a cor- 
poration and partnership are indistinguishable. Sup- 
pose it were now proposed to regulate the inter se 
rights and relations of copartnerships by a federal 
statute, would any one contend for the power under the 
commerce, or any other clause? 

Validity may be claimed for the proposal because the 
purpose is the exclusion, conditionally, of corporations 
from interstate commerce, and that we need not look 
beyond the corporations affected to observe the effect 
upon internal corporate rights. But we should not close 

263 



CONTROL OF STATE CORPORATIONS 

our eyes to the fact that if the bill should pass the ques- 
tion of constitutionality is sure to come at once before 
the courts, and that the courts have invariably refused 
to limit their consideration to mere forms of statutes. 
They will, whether it be admitted or not, see that 
the real purpose of the Act was to regulate the internal 
affairs of corporations, and that the wrong which Con- 
gress intended to reach was not anything touching or 
affecting what they understand to be interstate com- 
merce, or commerce at all, but those private contractual 
relations arising between individuals, and between indi- 
viduals and corporations when a corporation is created, 
or when there is a new issue of stock. That is here the 
avowed purpose, and the only object desired. Any re- 
port of the committee favorable to the bill, or any such 
bill, is bound to disclose that purpose, and any debate 
on the floor of either House will not only fail to conceal 
that purpose but show that such is the purpose and the 
only purpose. 

We see a misconception of the nature and meaning 
of interstate commerce in the designation of the en- 
tities to be affected. Transportation companies are 
exempted, and yet it embraces all corporations engag- 
ing or that may contemplate engaging in interstate com- 
merce, to any extent, even in one interstate act. The 
returns under the corporation tax act disclosed the ex- 
istence of over 264,000 corporations after excepting 
several large classes, and all whose net incomes were 
less than $5,000. So there must be about a half mil- 
lion business corporations in the country, scarcely one 
of which is not engaged to at least some small extent in 
commerce between the States. 

The division of corporations or persons into those 
engaged and those not engaged in interstate commerce 

264 



CONTROL OF STATE CORPORATIONS 

is an impossible classification. Scarcely one would be 
found in the latter class. Few individuals can be found 
whose affairs are of any importance, not engaging to 
some small extent in commerce between States, if it 
be only one or two transactions a year. And for the 
purpose of this bill, or any such bill, the right of such 
a person to so engage must be given the same considera- 
tion as that of some great wholesale or jobbing house^ 
making many large shipments from State to State every 
day. 

That the true legal line must be drawn subjectively 
and not with reference to persons, occupations, or de- 
grees of participation in any character of commerce, and 
that conduct rather than status or relation is the de- 
cisive test of amenability under interstate commerce 
regulations is established by numerous decisions of the 
Supreme Court. In Hopkins v. United States (171 U. 
S. 578) and in Anderson v. United States (171 U. S. 
605) the parties proceeded against were actively engaged 
in interstate business. But the Anti-trust Act was held 
inapplicable because the particular conduct complained 
of was only incidental to, and was not a part of, inter- 
state commerce; and though interstate commerce was 
affected by it, and possibly restricted to some extent, 
yet the restraint, if any, was indirect. In Leowe v. 
Lawler (208 U. S. 274) it was strenuously contended 
by counsel that inasmuch as the conduct forming the 
basis of the action consisted in carrying out the pur- 
poses of an association which was not engaged (and 
none of its members were engaged) in interstate com- 
merce, therefore they could not be held liable under the 
Anti-trust Act. But the court took the view herein- 
before expressed, and denied the existence of any such 
test or distinction. In Adair v. United States (208 

265 



CONTROL OF STATE CORPORATIONS 

U. S. 161), it was held that though Congress has power 
to prescribe rules by which interstate commerce must 
be governed, yet the rules prescribed must have a real 
and substantial relation to or connection with the com- 
merce to be regulated. There Congress had passed an 
act penalizing acts of discrimination by carriers in inter- 
state commerce in the matter of employing labor against 
members of labor unions, the connection between the 
employment of labor being considered by the court not 
sufficiently close to interstate commerce to justify the 
legislation under the Constitution. Obviously, the con- 
nection made by employment of those who actually 
cause movements in interstate commerce is not more 
remote from the commerce itself than is that of those 
who merely supply the things upon which the labor 
causing the movement takes effect. 

The Supreme Court has in more than one instance 
dealt with what it designated as attempted perversions 
of the power delegated in the commerce clause. Some 
of these cases have a direct bearing upon the attempt 
made in this as in the Lenroot Bill, and in the Bristow 
Bill even to a greater extent, to accomplish under the 
guise and form of regulating interstate commerce, cer- 
tain ulterior objects, having no legal relation to the com- 
merce which Congress has power to regulate. In Mc- 
Culloch V. Maryland (4 Wheat. 423), Chief Justice 
Marshall announced what may be regarded as a cardinal 
doctrine governing just such attempts as those before 
us, saying: 

Should Congress, under the pretext of executing its powers, 
pass laws for the accomplishment of objects not entrusted to 
the Government, it would become the painful duty of this 
tribunal, should a case requiring such a decision come before 
it, to say that such an act was not the law of the land. 

266 



CONTROL OF STATE CORPORATIONS 

In Veazie Bank v. Fenno (8 Wall 533), Chief Justice 
Chase, discussing the necessity for keeping distinct 
Federal and State sovereignty (also directly involved in 
these legislative proposals), said: 

There are indeed certain virtual limitations arising from the 
principles of the Constitution itself. It would undoubtedly be 
an abuse of the power if so exercised as to impair the separate 
existence and independent self government of the States or if 
exercised for ends inconsistent with the limited grants of power 
in the Constitution. 

An idea has sprung up in recent years that Federal 
powers can be so utilized as to coerce men by means 
of penalties into submitting to legislation which would 
be otherwise clearly unconstitutional; that is to say, that 
the Federal Government may, by resorting to mere 
statutory forms, accomplish by indirection what it could 
not do directly. 

The Supreme Court has clearly and unequivocally 
expressed itself concerning a resort to mere forms to 
accomplish unconstitutional objects. In Union Bridge 
Co. V. United States (204 U. S. 364, 397), the court 
said: 

If the means employed have no real substantial relation to 
public objects which the Government may legally accomplish; 
if they are arbitrary and unreasonable, beyond the necessities 
of the case, the judiciary will disregard mere forms and interfere 
for the protection of rights injuriously affected by such illegal 
action. The authority of the courts to interfere in such cases 
is beyond all doubt. 

The Federal Government has no interest in the ques- 
tion of child labor in the States, and yet legislation has 
been proposed and vigorously urged to exclude the 
products of child labor from interstate commerce, and 
the answer thus far successfully interposed was that 
no interstate-commerce reason was shown as a consti- 
tutional warrant for it. In other words, the quality or 

267 



CONTROL OF STATE CORPORATIONS 

desirability of the articles so produced for transporta- 
tion from State to State depends in no respect or degree 
upon the character or age of those employed in their 
production. The answer was the same, in substance, 
as the reasons given by the court in the Adair case for 
holding the statute there considered invalid. So here, 
no one has the temerity to insist that Congress could 
directly regulate the stock and bond issues of private 
corporations created by the States, but it is urged that, 
starting with the declaration of a forfeiture of the con- 
stitutional right to participate in interstate trade, the 
same end can be reached by indirection. Again, the 
Supreme Court, in case after case, has emphasized the 
necessity of preserving the division of authority between 
the States and the Federal Government; and it is clear 
that if Congress may so far interfere and control that 
distinctive sovereign power exercised in creating, limit- 
ing the powers and prescribing the duties of corpora- 
tions, it would be difficult to place bounds to its invasive 
powers, where any question arises as to the line of de- 
markation between the respective sovereignties. 

But still treating the proposal as one to regulate cor- 
porate affairs, another view established by the Supreme 
Court would seem to create an insuperable obstacle to 
its being sustained as against objections to its constitu- 
tionality. In its operation upon the corporate entities 
(ignoring here its effect upon internal interests and 
managements), no distinction is made between the inter- 
state and intrastate commerce carried on by them, the 
latter of course being beyond the constitutional power. 

In Employers' Liability Cases (207 U. S. 463), it was 
held that while the statute embraced subjects within the 
authority of Congress to regulate commerce, it also in- 
cluded subjects not within its constitutional power, and 

268 



CONTROL OF STATE CORPORATIONS 

that the two were so interblended in the statute that 
they were incapable of separation and the statute was 
therefore repugnant to the Constitution and non- 
enforceable. In the opinion appears language bearing 
directly upon this objection to the bill under considera- 
tion, as follows: 

Now, the rule which the statute establishes for the purpose 
of determining whether all the subjects to which it relates are 
to be controlled by its provisions is that anyone who conducts 
such business be a common carrier engaged in trade or com- 
merce in the District of Columbia, or in any Territory of the 
United States, or between the several States, etc. That is, the 
subjects stated all come within the statute when the individual 
or corporation is a common carrier who engages in trade or 
commerce between the States, etc. From this it follows that 
the statute deals with all the concerns of the individuals or 
corporations to which it relates if they engage as common 
carriers in trade or commerce between the States, etc., and does 
not confine itself to the interstate commerce business which 
may be done by such persons. Stated in another form, the 
statute is addressed to the individuals or corporations who are 
engaged in interstate commerce and is not confined solely to 
regulating the interstate commerce business which such persons 
may do — that is, it regulates the persons because they engage 
in interstate commerce, and does not alone regulate the business 
of interstate commerce. 

These principles would also apply to attempts at Fed- 
eral regulation of the stock and bond issues of rail- 
roads. The Federal Government is no more concerned 
with capitalization and stock transfers of railroad cor- 
porations, per se, than with the deeds and muniments 
of title to real estate which it has power to condemn for 
its purposes. These must, indeed, be examined to ascer- 
tain the extent of interest of the parties against whom 
condemnation suits are begun, and to ascertain if the 
title which the Government may acquire is a good title; 
but it does not by any means follow from the exercise 
of the power of eminent domain in such cases that 
Congress can regulate titles and transfers of real estate 
within the States. 

269 



CONTROL OF STATE CORPORATIONS 

At this point, this question arises in many minds: 
Suppose a railroad company by purchases of stock gets 
control of a competing road and acquires a monopoly 
of interstate commerce in a section of the country, does 
not the foregoing contention deny to the Government a 
remedy in a case like that? The answer is not difficult 
when the point has been thoughtfully examined. While 
Congress cannot directly legislate concerning stock own- 
ership and stock transfers, it can legislate for the con- 
trol of interstate commerce and control includes protec- 
tion. And when, as in the Anti-trust Act, restraint and 
monopoly are forbidden and a case under that statute 
arises, the Government has unlimited power within the 
rules of evidence to prove its case. It can prove the 
means, agencies and instrumentalities by which a 
monopoly has been attempted or created or restraint 
imposed. If an attempt has been made to violate the 
statute by acquisition of stock in rival companies, that 
can be shown the same as if it were created by the 
execution of leases, by restrictive contracts or other- 
wise. And such transactions may be undone and set 
aside or enjoined by the court when necessary to give 
the Government the relief to which it is entitled. But 
the remedial provisions of the Anti-trust Act belong 
to the law of evidence and procedure, and have nothing 
to do with the substantive provisions making rules for 
interstate commerce. And Congress may establish rules 
of evidence and porcedure, or may change them. It 
may do so in a regulating statute or in a separate statute. 
But, in doing so, it is exercising a power other than 
that conferred by the interstate commerce laws, and 
which cannot be so extended as to affect substantive 
rights. 

The doctrine of Trade Mark Cases (100 U. S. 82), 

270 



CONTROL OF STATE CORPORATIONS 

quoted in criticizing the Lenroot Bill, also raises an 
insuperable constitutional obstacle to this bill. 

Now let's notice briefly and generally the forms and 
processes of legislation. This may be academic and 
abstract, but it has a direct application to the matters 
in hand. The declaratory or substantive part of a 
statute is not always expressed. It is often the sup- 
pressed or impHed major premise. If, for instance, the 
declaratory part of the Anti-trust Act had been omitted, 
the Act would have been just as valid and have had 
exactly the same effect in operation. The question of 
the power of Congress to provide and enforce the 
remedies could have been raised, as the Supreme Court 
has construed the Act, upon the impUed major premise 
as advantageously without as with the declaration that 
"Every contract," etc., "is hereby declared to be illegal." 
Now this bill is a reversal of the usual form and 
arrangement of a statute, as if the draftsman were en- 
deavoring to avoid constitutional objections by mere 
clerical cunning and skill. The declaratory part does 
not come first but last, and the remedial part comes 
first. The substance of the bill is that it lays down new 
rules for organizing and conducting corporations and 
as a means of securing compliance imposes the penalty 
of forfeiture of a valuable right for non-compliance. 
So that in purpose and effect, it is a complete federal 
incorporation law, proposing to impose the exclusive 
will of Congress on most business corporations of the 
country as to how they shall organize or reorganize and 
what they shall do, equivalent to and requiring reincor- 
poration and becoming very different corporations. Not 
only so, but other such structural changes must be made 
from time to time as Congress may see fit to direct. 
That is one of the matters to be taken care of in the 

271 



CONTROL OF STATE CORPORATIONS 

new charters with which they must be provided at the 
outset. 

The whole thing is impossible, and impossible regard- 
less of any question of constitutionality. No one would 
stand for a proposal that Congress might directly pass 
such laws for one of the States, that is to say, a law 
operative within a single State. Is the objection to such 
a proposal removed by Congress doing the same by 
wholesale There isn't a State in the Union but would 
have to revise and greatly change its incorporation laws 
in order that its corporations could comply with the re- 
quirements of this bill. When we reflect that the 
creation of a corporation is peculiarly an act of sov- 
ereignty which Congress can no more control as an 
attribute of State sovereignty than it can a State's tax 
laws, or the internal laws of a foreign nation, we see 
how impossible it would be for State-created corpora- 
tions to comply with these arbitrary mandates. 

Then there are involved a large number of vastly 
valuable contractual relations all of which would re- 
quire to be changed and new contractual relations would 
have to be entered into. All charters issued, and all 
articles of incorporation filed, create many such relations 
prior to a single step being taken to organize and begin 
carrying out the purposes of a corporation. Such pre- 
liminary step creates a contract between the State and 
the corporation, and between the corporation and the in- 
corporators, and between each incorporator and each 
of the other incorporators. Thereafter the same result 
follows the issuance of each stock certificate, even if 
it be for only one share. These contracts are as much 
protected by the constitutional prohibition against im- 
pairment as are other contracts. Now since the charter 
constitutes the ligament binding the corporation to th^ 

27^ 



CONTROL OF STATE CORPORATIONS 

State, the State to the corporation, the corporation to its 
members, and the members to the corporation and to 
each other, we see the difficulties met with at the outset 
in "reorganization" in comphance with the requirements 
of the bill. The first step, taking for illustration the 
State of New York, would be to set its executive and 
legislative departments in motion to bring about radical 
changes in its laws of incorporation. After that, and 
supposing the State desired to make the changes, many 
questions would arise as to how to frame its measures 
to accomplish the desired end, preserving meantime con- 
stitutional and vested rights. We will proceed to the 
violent assumption that at the end of controversy and 
debate the changes were rnade. All this would be simply 
impossible within the time limited in the bill, or within 
any reasonable time, even if by any possibility it ever 
could be done. But assuming it possible and consum- 
mated, we have now confronting the corporation a task 
which would be quite a legal as well as a physical im- 
possibility. The term reorganization is used in the bill; 
but the term is frequently misunderstood. The only 
reorganization that a corporation can accomplish is in- 
ternal. If the charter or articles are amended a new 
corporation comes into existence. Unless such change 
was reserved to a majority by statute in force when the 
original corporation was formed, the consent of every 
stockholder must be obtained before it can be legally 
done. But it is safe to say that no State law now au- 
thorizes a bare majority or any majority to make the 
specific changes prescribed by this bill. But suppose 
every shareholder is found legally capacitated to con- 
sent, and does consent. What is then dojie is not b, 
"reorganization" but a new corporate creation, very 
different from the original in many respects. Out of 

273 



CONTROL OF STATE CORPORATIONS 

it all would come, what never can be under our system, 
both a State and Federal corporation, answerable to 
two independent sovereignties. This is clearly one of 
the required provisions of the new articles. 

We might also note here the requirements as to vot- 
ing rights and qualifications of stockholders and officers, 
all of which though heretofore much discussed are now 
found provided for as here prescribed in the laws in 
few if any of the States. 

The bill provides that the new articles shall bind the 
corporation to change its charter when required to do 
so by either of these two sovereignties, whose policies, 
interests and purposes may often widely diverge. And 
section seven provides that "any corporation or asso- 
ciation organized, conducted and managed as required 
by section one, shall, after the passage of this Act, be 
entitled to engage in commerce between the States and 
in the District of Columbia, and to carry on its author- 
ized business relative to such commerce in any part of 
the United States, subject to the provisions of this Act 
and to all present laws of the United States and to 
future acts of Congress, and to general laws and taxing 
powers of any state in which it may do business." It 
will be noted that this is not only a federal incorpora- 
tion bill, but possesses the additional attraction of being 
a federal license bill. 

That every corporation complying with the require- 
ments of the bill in the matter of framing new charters 
or articles, and in other particulars, becomes to all prac- 
tical intents and purposes a federal corporation is seen 
in the penal provisions other and additional to the for- 
feiture of interstate business. 

Section two invalidates all contracts made in viola- 
tion of the Act (whatever that may mean) and seeks 

274 



CONTROL OF STATE CORPORATIONS 

to exclude from the federal courts all corporations 
which do not comply with all the requirements of the 
Act with respect to organization, conduct and manage- 
ment. That is to say, they are excluded though com- 
pliance may be impossible, for any of the reasons before 
stated. But notwithstanding that the corporation cannot 
come into a federal court of its own volition any one 
who had made a contract with it and wishes to defend 
against it for invalidity because of its non-compliance, 
may drag it into the federal courts by removal, for the 
bare purpose of making that defense available. 

But we discern in the main purpose of the bill an 
entire misconception of the federal system and of the 
relation between Federal and State sovereignties. It 
is totally inconsistent with the dual scheme of govern- 
ment that a corporation should be with respect to its 
organization and management, as such, subject to the 
laws of both Federal and State authority. That all these 
matters to be regulated by the first section belong ex- 
clusively to State authority has been often declared by 
the Supreme Court, and nowhere more emphatically 
than in the Northern Securities Case (193 U. S. 347- 
349), where it was objected that the Federal law, as 
interpreted and upheld by the court, invaded the proper 
province of State authority. There the court said: 

The defendants rely, with some confidence, upon the case 
of Railroad Company v. Maryland (21 Wall., 456, 473). But 
nothing we have said is inconsistent with any principle an- 
nounced in that case. The court there recognized the principle 
that a State has plenary powers "over its own territory, its 
highways, its franchises, and its corporations," and observed 
that "we are bound to sustain the constitutional powers and 
prerogatives of the States, as well as those of the United 
States, whenever they are brought before us for adjudication, 
no matter what may be the consequences." Of course, every 
State has, in a general sense, plenary power over its cor- 
porations. 

275 



CONTROL OF STATE CORPORATIONS 

It may be the theory of the proponents that these 
changes in corporate structure could generally be made 
without amending the statutes of the States. Some of 
them could no doubt be made, but then constitutional 
provisions and other State laws would be everywhere 
found to stand in the way of the exclusions, disqualifi- 
cations and new obligations contained in the bill. It 
seems there could be no challenge for the proposition 
that a provision in the articles or by-laws submitting the 
internal control of a corporation to any future action 
of Congress, and binding the corporation to change its 
constating instruments as often as necessaty, so as to 
impose obligations to an outside sovereign would be 
ultra vires and void. Such conduct might subject the 
franchises of the corporation to forfeiture, or be merely 
abortive and void. 

Passing now from the part of the bill, the putting in 
force of which is the only purpose of its being offered, 
constituting the substantive or declaratory feature, we 
come to the question of whether Congress has power 
to arbitrarily exclude corporations from interstate com- 
merce. We might assume it to have been herein already 
shown that becoming qualified for engaging or continu- 
ing in the commerce after, or, if the bill shall pass, is 
legally impossible. But we will assume that compliance 
is possible. The constitutional aspect of the question 
we now meet is not altered. Probably no lawyer will 
contend that the imposition of an impossible condition 
to the exercise of a right or privilege is not the exact 
equivalent of an outright exclusion. But the general 
rule, or principle, subject to some modification, is adverse 
to the power of Congress to exclude persons (including 
artificial persons) from commerce between the States. 

Congressional prohibitions and exclusions are not up- 

276 



CONTROL OF STATE CORPORATIONS 

held by the courts except when based upon what may 
be designated as interstate-commerce reasons. Con- 
gress can exclude lottery tickets because they are not 
recognized articles of Commerce and because no one 
has a vested right to engage in traffic which is generally 
recognized as immoral. (Lottery Cases, 188 U. S. 32 L) 
Congress can forbid and penalize the transportation of 
commodities, produced or owned by a carrier not re- 
quired by it for its own uses, but to be sold in the open 
market in competition with other owners and producers, 
because of its tendency to destroy competition, restrict 
trade, and create monopolies in interstate commerce. 
(Commodities Cases, 213 U. S. 336.) Here we have 
the interstate-commerce reason, that is to say, the direct 
effect of the forbidden act or course of conduct to affect 
prejudicially that commerce which it is the province 
and duty of Congress to protect. But the attempt to 
exclude all corporations and with them nearly all busi- 
ness, without distinction between the good and bad, the 
beneficial and the deleterious, either unconditionally, or 
upon an impossible condition, or even upon the per- 
formance of conditions requiring merely a surrender of 
a right or legal interest, the condition having no direct 
connection with actual movement in interstate com- 
merce, and the performance of which does not consti- 
tute the removal of any obstruction to the free flow of 
commerce, raises a different question. Would not that 
be a perversion of the power mentioned in some of the 
cases? By a perversion is meant just what is here 
attempted to be done ; the accomplishment of an ulterior 
purpose, using constitutional authority as a mere guise 
and pretext. 

Apart and distinct from the point just raised there is 
another, subject to the exceptions just referred to, based 

^77 



CONTROL OF STATE CORPORATIONS 

upon obvious constitutional reasons which do not 
weaken but rather fortify the rule itself. Is not the 
right to legitimately participate in interstate commerce, 
subject to general regulations, a constitutional right? 
It should be observed that corporations and individuals 
stand upon an exactly equal footing herein. Any 
attempt to differentiate between them with respect to 
interstate trade will be futile. Interstate commerce ex- 
isted prior to the Constitution and corporations as well 
as individuals were in the enjoyment of its benefits, 
though it should be admitted that it partook of the 
character of international trade, depending for its con- 
tinuance upon international agreements, that is to say, 
State comity. Nevertheless, and even if it be conceded 
that the right was created by the Constitution, yet it 
was the same right previously existing, then contingent, 
now absolute. The Constitution has been termed a 
chart of freedom, and to embody the spirit of the 
Declaration of Independence. There may be privileges 
of the freeman of more value than that of engaging 
in interstate commerce, nevertheless that is of consider- 
able value to many, and may be of some value to all. 
The right of free migration from State to State may 
never be exercised by some, but is one belonging to all. 
Could Congress, for a reason not directly connected 
with the movement, forbid interstate travel? The 
answer must be in the negative ; and for the same reason 
the existence of the power here claimed must be denied. 
To this point we have discussed the right as an im- 
munity or privilege secured by the Constitution, a part 
of social freedom which persons are entitled to enjoy 
whether claimed in an individual or corporate capacity. 
But the right is one of pecuniary value and has been so 
regarded in cases decided in the Supreme Court. What 

278 



CONTROL OF STATE CORPORATIONS 

does the Interstate Commerce Act regulate? Merely 
that part of interstate commerce included in the term 
transportation. Why cannot the Commission reduce 
rates to a point where profits would disappear, or the 
carriers could only continue in the business at a loss? 
The courts which deny such power to Congress, act- 
ing through the Commission, have stated the reason tc 
be that such rates would work a confiscation of their 
property; in other words, deprive them of a beneficial 
use of their property, of rights of pecuniary value with- 
out compensation and without due process of law. 
These carriers are mere private corporations whose busi- 
ness is made up in part only of interstate commerce; 
that is to say, they are like many a mercantile and many 
a manufacturing corporation, engaged partly in inter- 
state and partly in intrastate trade. Perhaps in a greater 
degree, but in the same legal sense, the property in 
which both kinds of corporations have invested their 
capitals is devoted to the same dual use, and in most 
cases, it would be impossible to segregate the part used 
in the one from that used in the other. That the con- 
stitutional inhibition against deprivation without due 
process of law protects the beneficial use as well as the 
corpus and possession of property is no longer an open 
question, and as a principle of constitutional law would 
render the legislation here proposed invalid. In Law- 
ton V. Steele (152 U. S. 137), the Supreme Court said: 

The legislature may not, under the guise of protecting 
the public interests, arbitrarily interfere with private business, 
or impose unusual and unnecessary restrictions upon lawful 
occupations. In other words, its determination as to what is 
proper exercise of its police powers is not final or conclusive, 
but is subject to the supervision of the courts. Thus an act 
requiring the master of a vessel arriving from a foreign port 
to report the name, birthplace and occupation of every pas- 
senger, and the owner of such vessel to give a bond for 

279 



CONTROL OF STATE CORPORATIONS 

evelry t)assenger so reported, conditioned to indemnify the State 
against any expense for the support of the persons named for 
four years thereafter, was held by this court to be indefensible 
as an exercise of the police power, and to be void as interfering 
with the right of Congress to regulate commerce with foreign 
nations. Henderson v. New York, 92 U. S., 259. 

And in Munn v. Illinois (94 U. S. 141), it was said: 

All that is beneficial in property arises from its use and the 
fruits of that use, and whatever deprives a person of them 
deprives him of all that is desirable or valuable in the title 
or possession. If the constitutional guaranty extends no farther 
than to prevent a deprivation of title and possession and 
allows a deprivation of use and the fruits of that use, it does 
not merit the encomiums it has received. 

That the right to engage in interstate commerce is 
itself a constitutional right, aside from the mere ele- 
ment of beneficial use was expressly held in Vance v. 
Vandercook (170 U. S. 436), where it was said: "The 
right of persons in one State to ship liquor into another 
State to a resident for his own use is derived from the 
Constitution of the United States, and does not rest on 
the ground of the State law." The decision in Robbins 
V. Shelby Taxing District (120 U. S. 489) means the 
same. It established the right to engage in interstate 
commerce as a constitutional right. 

Many lengthy debates and discussions have taken 
place in the halls of legislation and in the courts upon 
the true meaning of the Commerce Clause in the Con- 
stitution as well as about the nature and boundaries of 
the power. Of course the only utterances which are 
authoritative on the subject are those of the courts, and 
especially those of the court of last resort. Among the 
early and oft repeated utterances was one to the effect 
that the power to regulate is not the power to destroy. 
Now if we carry that expression along in the mind while 
studying the decisions, in an effort to discover what 
the power is, we arrive at a degree of consistency in 
the aggregate of decisions which would otherwise be 

280 



CONTROL OF STATE CORPORATIONS 

impossible. We find that while it is true that the power 
to regulate is not the power to destroy, yet true and 
effective regulation sometimes necessitates a resort to 
a destructive exercise of the power. To use a some- 
what homely illustration, we would say that to cultivate 
a crop of corn is not to destroy it, and yet in its suc- 
cessful cultivation it may be necessary to destroy part 
of that which has attached itself to the growing stalks 
known to the corn-grower as "suckers." All this has 
been explained from time to time, so that to regulate 
interstate commerce is not merely to promote it, but 
to protect it as well. One phase of its protection is 
seen in the Anti-trust Act forbidding its restraint and 
monopolization; another is seen in the Act excluding 
lottery tickets from its current; another is found in the 
pure food law. Others might be mentioned. But when 
any deleterious or obnoxious commodity is excluded, 
we see an effort not to diminish its volume, but to purify 
it, and ultimately to increase it. That was the purpose 
of Congress in the enactment of the Commodities Clause 
as already explained. 

The exclusion of coal owned or produced by a car- 
rier to prevent discrimination and destruction of com- 
petition would not justify the exclusion from commerce 
of all coal owned or produced by corporations not 
organized and managed in a certain way; the exclusion 
of bits of paper on which are printed permission to 
participate in a lottery drawing, would not warrant the 
exclusion of the same paper intended to be used by the 
consignee for a moral and legitimate purpose, merely 
because the manufacturing consignor has not incor- 
porated, or is not managing its business in a certain 
way. And the fact that the power over the subject 
has been so exercised as to facilitate the enforcement 

281 



CONTROL OF STATE CORPORATIONS 

of the laws of particular states against the evils of the 
liquor traffic is something very different from inter- 
dicting commerce in intoxicating liquors between two 
States both of which recognize the traffic as legitimate, 
and for reasons foreign to evils inherent in the traffic. 

It has been claimed that support for the exercise of 
the arbitrary power asserted by this bill is found in 
cases involving foreign commerce, and certain general 
expressions asserting the same breadth and absolute- 
ness of power to reside in Congress with respect to 
interstate as with respect to foreign commerce. Crutcher 
V. Kentucky (141 U. S. 5-7), and Brown v. Houston 
(114 U. S. 622), are two of the cases where are found 
general statements of such analogy between interstate 
and foreign commerce. But in these and all such cases 
the court was dealing with the partition between Fed- 
eral and State authority, and the relations between the 
Federal Government and particular States with respect 
to interstate commerce. Of course the States divested 
themselves of the one power as completely as of the 
other when they adopted the Constitution. And as 
against State authority the constitutional power of the 
general government is as supreme and absolute over 
interstate as over foreign commerce. But there is a 
difference in what we may properly designate as the 
breadth of the power arising from the difference be- 
tween the relation of the United States to the citizens 
of the States and its relation to the citizens of foreign 
nations. The Constitution contains numerous guaran- 
tees and prohibitions in favor of and for the protection 
of the citizens of the States who are likewise citizens 
of the United States ; but it contains none of which 
aliens can claim the benefit. Each of these modifies 

282 



CONTROL OF STATE CORPORATIONS 

and tempers the power over interstate commerce, which 
is not the case in the regulation of foreign commerce. 

It is generally conceded that the national government 
would have had control of foreign commerce even if 
not expressly conferred in the Constitution. But the 
control would not have been exclusive of the States. 
Without the express delegation of power to the central 
government each State must have continued to be treated 
by foreign governments as independent sovereignties, 
having powers with respect to international commerce 
coequal with that of the United States. Moreover, in 
dealing with foreign commerce, Congress does not 
merely exercise its commercial power, but all the unified 
powers of the nation, those constituting the attributes 
of sovereignty outside the Constitution as well as those 
pertaining to war, taxation, finance, etc., in the way of 
the exercise of which stand no contractual obligations, 
or vested or property rights. Such was the view taken 
by the courts in cases arising under the embargo and 
non-intercourse acts passed during the War of 1812. 

The prohibitory form of regulation has been ex- 
pressly approved in some of the cases. That fact is of 
no value here as an argument. In fact it is of small 
value in any case. Any rule for the government of 
commerce necessarily excludes other rules and prohibits 
all conduct inconsistent with the rule. But the power 
to forbid where Congress possesses the power to regu- 
late cannot of course enlarge the scope of the power to 
regulate. When Congress prescribes safety appliances 
for cars hauled in interstate commerce, the statute would, 
without more, prohibit their being hauled without safety 
appliances. But there, as in most such statutes, penal- 
ties are imposed for non-compliance. It is hardly neces- 

283 



CONTROL OF STATE CORPORATIONS 

sary to say that anything declared illegal and for which 
penalties are prescribed is ipso factQ prohibited. 

It is the purpose now to notice briefly some of the 
arguments advanced in support of the bill. 

In making them the proponents assume constitutional 
warrant for the measure in its entirety and for every 
detail, without discussion, and yet they assail the scheme 
of Federal incorporation for unconstitutionality. If 
Congress cannot create corporations and put them into 
interstate commerce, thus increasing the number of 
those engaging in it, it certainly cannot destroy an im- 
portant part of it by excluding therefrom many now 
engaged in carrying it on. Thjs is not to be construed 
as a committal one way or the other on the question 
whether Federal incorporation would be constitutional. 
But in combatting the policy of Federal incorporation 
proponents merely succeed in exposing the insuperable 
obstacles and fatal objections to their own scheme. One 
of their objections to Federal incorporation is that it 
would secure to the Federal executive the effective con- 
trol of the business of the country, a control which they 
admit is practically impossible in any government that 
is free and expects to remain free. But would the 
executive hand be more of a menace in enforcing the 
provisions of a Federal charter than in the enforcement 
of the duties and imposing the forfeitures and penalties 
here provided for and brought within Federal juris- 
diction? They object that under Federal incorporation 
vast business interests would be held on the borderland 
of monopoly by the elective head of the nation, that all 
the big brains, all the big money cunning and greed of 
the country working toward a common end would be 
pitted against a handful of men big and little, holding 
down their jobs until some one offers them better ones. 

284 



CONTROL OF STATE CORt»ORATIONS 

But who besides the same executive and his cohorts 
would be entrusted with the tangled web of provisions 
of the Williams-Sniith Bill or any of the bills? They 
remark in the same connection that enough men could 
not be kept in Washington of requisite ability to "co- 
operate" with licensed combinations to keep them within 
the law against monopoly. But under the scheme of 
this bill the vast and intticate work of inspection, detec- 
tion £Lnd supervision could not be done at Washington 
at all. The executive swarm would penetrate every 
nook and corner of corporate activity in the country. 

They also object to Federal incorporation on the 
ground that it would be in effect a license law. It 
would be very difficult to frame a bill in which the 
licensing featufe was more conspicuous than in the bill 
we are now considering. Corporations yet to be created 
could only come into interstate commerce by meeting 
Federal conditions and those now in could not remain 
in except upon a similar compliance. 

Proponents also take up the hue and cry against the 
Anti-trust Act aiid denounce it as bitterly as to do those 
who have felt the sting of its enforcement. They say 
prohibition has failed. Of course the assumption that 
it has failed is purely gratuitous, but, strangely enough, 
the othet leaders in defamation of the Anti-trust Act 
— those who have fallen, or who are in dread of faUing 
before judicial decrees rendered in is enforcement — 
make the same objection to it. 

Then they proceed to condemn all regulation just as 
if what they propose were not the most sweeping and 
drastic regulation conceivable, forgetting, or never 
realising that the whole power of Congress is expressed 
in the words "to regulate." Then with fatuous incon- 
sistency the Williams- Siiiith Bill is urged not only as 

285 



CONTROL OF STATE CORPORATIONS 

a law necessary in itself to compel the reform of cor- 
porate charters and to prevent corporate monopoly, but 
as an alternative to Federal incorporation and regula- 
tion, and as a much needed supplement and effective 
aid to the enforcement of the existing law. 

Then, assuming that monopolies and near monopolies 
are inevitable, it is asserted that there are obvious evils 
in our corporate laws which obviously require correc- 
tion, which obviously affect and confuse the question 
of monopoly, which they expect to correct by the 
proposed measure. Here we have an undisguised ad- 
mission of an ulterior purpose, a purpose beyond the 
power to regulate, a purpose to correct evils which only 
affect interstate commerce collaterally and remotely. 
Of course the real purpose appears just as clearly on 
the face of the bill, but by calling attention to the ad- 
mission the lack of preparedness on the part of those 
essaying to advise legislation on so important a sub- 
ject is shown. 

It is urged in favor of the bill that the underlying 
difficulty in the trust question is the corporation, that is 
to say, in the corporation laws of the States ; that this 
difficulty was the cause of twenty years' evasion of the 
Sherman law; that it is the cause of the present im- 
possibility of reorganizing the trusts so as to insure com- 
pliance with that law. Here we have a significant sug- 
gestion. Since some of the trusts broken up by court 
decrees were organized, reforms have taken place in the 
corporation laws of some of the States wherein sub- 
sidiary corporations were organized. Now if such a 
bill as this can be passed and put in force, establishing 
uniformity, and having all the advantages of Federal 
incorporation, the combined, or monopolistic control of 
several such corporations by secret concert will be en- 

286 



CONTROL OF STATE CORPORATIONS 

tirely feasible. But that the corporate form is, or has 
ever been, an obstacle to the enforcement of the Anti- 
trust Act is as absurd as it is untrue. The corporate 
form has always presented a target easily seen and hit. 
In fact, the mere form of the thing has never bothered 
either the prosecution or the courts. Every form of 
actual restraint, when discovered, has been successfully 
proceeded against. The only difficulty has been that 
of discovery, and this bill wonld facilitate concealment. 
In an argument for this bill which has been printed and 
distributed, it is made to appear that it satisfies the 
Attorney-General's demand for Federal incorporation 
(referring to Mr. Wickersham). In it we find the fol- 
lowing passage: "This whole proposition of Federal in- 
corporation and regulation is so repugnant to me, so 
fatal I believe to the principles of American govern- 
ment, to our progress and welfare as a people, and so 
unnecessary that I am afraid it leads me into a more 
severe criticism of its advocates, particularly Mr. 
Wickersham, than would otherwise be justified. For 
it is he who is now, as I see it, using his high office to 
make Federal regulation of business a permanent insti- 
tution. In conceding as he did, the efficiency of the 
principle of the Williams Bill, his suggestion shows that 
he is unable or unwilling to apply it effectively." Now 
if Mr. Wickersham has conceded the efficiency of this 
bill, it must be for the reason that it is a fair substitute 
for Federal incorporation, for which he unflinchingly 
and consistently stands. In that connection, it is unre- 
servedly admitted, or rather pointed out, that the bill 
"would make State corporations safe instruments of com- 
merce; that it would write into their charters and gov- 
erning laws the necessary limitations and safeguards 
against monopoly; that in doing this Congress would 

287 



CONTROL OF STATE CORPORATIONS 

remain free to prohibit and exclude, to amend or in- 
crease the limitations or safeguards required, and nueet 
and correct every possible future evasion that may he 
attempted!' In other words, Congress would first get 
and then retain complete and absolute control over cor- 
porations. Such control would be necessarily exclusive, 
since by the language of the Constitution the law of 
Congress is "the supreme law of the land." What more, 
it may be asked, than is here attempted in the way of 
Federal control could be accomplished by a Federal in- 
corporation act? Evidently, the feature of this scheme 
which secures for it Mr, Wickersham's approval is the 
uniformity secured by it. It may or may not be signifi- 
cant that nearly all representatives of trust interests, 
hunger and c'lamor for uniformity, even extending to 
the fixing of prices, and that is all that monopoly re- 
quires. So true is this that monopoly has been defined 
as "unified tactics with regard to prices," 

When, if ever, the bill shall pass, and persons are 
excluded from directorships and even disqualified as 
stockholders because of owning stock in any other cor- 
poration for profit, the main financial support for enter- 
prises, great and small, will be withdrawn, and the 
credit of the corporations with which they have made 
investments will be destroyed. We need not now speak 
of the thousands of bankruptcies of corporations which 
will then have lost their most extensive and profitable 
trade because of the impossibility of conforming to the 
requirements of the bill as a condition of continuing in 
interstate commerce, but will assume that we have 
passed that Gibraltar. Few large business corporations 
are actually managed by the principal stockholders. 
These are capitalists who make investments in the 
stocks. It is the wise policy of all capitalists never to 

288 



CONTROL OF STATE CORPORATIONS 

put all their eggs in one basket, and this bill forbids a 
corporation to have as its stockholders any director or 
officer who is a stockholder in any other corporation for 
profit whether competitive or non-competitive. 

When this bill shall have passed and become a law, 
assuming it to be sustained as constitutional, it is then 
a Federal law throughout, and not a State law in any 
State. Various corporate acts must be performed and 
various proceedings had from time to time in order to 
maintain the legal status and escape the penalties im- 
posed by its provisions. The proper departments of 
the Federal Government will have a right to introduce 
their agents to the minutest of all corporate affairs, and 
the creation of new supervisory and inquisitorial 
bureaus and commissions to look after the business of 
private corporations and keep their officers and stock- 
holders in a straight and narrow way, will be a virtual 
necessity. Then there will have to be additional legisla- 
tion delegating to heads of departments authority to 
formulate codes of rules and regulations, having the 
force and effect of law ; so that State laws for corpora- 
tions will only be required, in fact will only be permis- 
sible, to fill up the little gaps and omissions. We may 
even go so far as to say that the passage of such a bill 
is incompatible with any State legislation, thereafter, 
at all, on the same subject, this then being the law of 
the land, supreme in every part. At any rate, bureau- 
cracy would make rules to take the place of State laws, 
thus antiquating and nullifying the latter. You will 
then have your amalgamated Federal incorporation and 
Federal License Act covering the whole subject of cor- 
porate control and management, and over it all your 
industrial commissions, with swarms of inspectors, 
special agents and detectives, more numerous than the 

289 



CONTROL OF STATE CORPORATIONS 

standing army, the State guards, police, and all other 
constabulary forces in the country. 

The last section purports to be a saving clause, pre- 
servative o£ all the provisions of the Anti-trust Act. 
But it is evident that the "seventh" clause of section one 
overlaps and duplicates most of its prohibitions and 
section five provides new or additional penalties for 
"every corporation, person or association violating this 
Act." And there are other parts of the bill which also 
duplicate the Anti-trust Act. Here is evidently a task 
of construction to determine whether the Anti-trust 
Act or "this Act" should apply where the same ground 
is covered by both. There would be just one way to 
reconcile the two, and that is to attach to "this Act" 
the meaning clearly intended and unambiguously ex- 
pressed. The "seventh" clause is absolutely unlimited 
in its scope and applicability. The distinction between 
interstate and all other business is ignored and the acts 
and conduct there specified are condemned and penal- 
ized as violations of Federal law. 

We would then have here State charters under which 
the corporations could also be proceeded against by quo 
warranto, or other summary remedies for a forfeiture 
of their right to do business and of their very existence, 
in the State courts and by State authorities for the least 
infraction or non-observance of any one of these mani- 
fold conditions, that is, if any authority at all would be 
left in the States. Either in the one jurisdiction or the 
other the corporation would all the time and at every 
turn be involved in, or menaced by proceedings putting 
in issue its right of existence, if in the opinion of a 
State officer, or the head of a Federal bureau, or a 
grand jury, it had either "directly or indirectly, of itself 
or in connection with others" destroyed or sought "un- 

290 



CONTROL OF STATE CORPORATIONS 

fairly to stifle competition in any part of the United 
States in the manufacture, production, mining, pur- 
chase, sale, or transportation of any articles of com- 
merce * * * by restricting its customers or other 
persons with regard to price, territory, or otherwise, in 
freely buying, selling, or transporting any such article, 
by securing the monopoly or control of raw material or 
sources of supply, or of any means of transportation, 
or of any business connected therewith, by temporarily 
or locally reducing prices with intent to stifle competi- 
tion, by accepting rebates, or by any other act, device, 
or course of business that tends to secure a monopoly 
or an unfair advantage and unreasonably and unfairly 
to destroy competition" (Seventh clause of Section 
one). 

The first task before corporations and their officers 
would be the ascertainment of the meaning of all this, 
and especially of the part here in italics. That is 
something which could not be settled in a hundred years 
of litigation. The only way to secure safety would be 
to go out of business. 



291 



CHAPTER XIII 

BILLS CONTAINING PROVISIONS FOR 
CREATION OF COMMISSIONS 

Such bills are so similar that it will suffice to discuss 
the most comprehensive, that of which vSenator Bristow 
is the author. He is conspicuous among the able and 
conscientious progressives, and has advocated this bill 
on the floor of the Senate. It has not been reached in 
committee hearing. 

This bill has for a principal feature the creation 
of an industrial commission, with detailed defini- 
tions and specifications of its powers. Many in- 
telligent men believe that some of the worst economic 
or industrial evils of which the people complain can be 
remedied by a commission better than in any other way. 
Nor can it be disputed that constitutional regulations 
of interstate commerce can be greatly aided by such 
agency. And yet matters beyond the power of Con- 
gress can no more be regulated by a resort to a commis- 
sion-scheme than outrightly and directly. 

Another proposition, equally well supported by au- 
thority may be thus stated. If such commission should 
be provided for and appointed, and duties assigned it, 
some properly within the scope of Congressional au- 
thority, and others outside, and such duties were in- 
separably intermingled in the enactment, its work must 
come to naught entirely, and the offices of the commis- 

292 



PROVISIONS FOR CREATION OF COMMISSION 

sioners would be as much sine cures as if all their osten- 
sible authority were unauthorized by the Constitution. 

Still another proposition, embodied in the decision of 
January 20, 1913, by the Supreme Court in the Louis- 
ville and Nashville Railroad Case and other decisions on 
comparatively recent dates, materially affect all commis- 
sion schemes. No decision of such a commission would 
be valid unless based upon original evidence taken by it. 
That decision goes far to forestall and render futile all 
projects to inaugurate discretionary government through 
commissions. The Government argued in the case just 
cited on behalf of the Interstate Commerce Commis- 
sion that the authority of the Commission to make rates 
was absolute and that there could be no relief unless the 
rate named by the Commission was confiscatory. The 
court rejected this reasoning, and, while supporting the 
Commission on the evidence in that case, held that a 
finding without evidence was beyond the power of the 
Commission, that an order based thereon was contrary 
to law and must be set aside by the courts. In other 
words, no such comniission as the Interstate Commerce 
Commission is, and as the proposed industrial commis- 
sion would be, can make roaming, spontaneous investi- 
gations, or decisions based on them. There must be a 
hearing on evidence in order that the courts may re- 
view the commission's action as a matter of law. 

Moreover, certain other fundamental principles gov- 
erning statutory tribunals have been declared by the 
courts. State and Federal. They cannot exercise legis- 
lative or judicial powers. The Constitution has made 
other dispositions of both. Nor can either branch of 
the Government divest itself of, or delegate, its power 
or any part thereof. If Congress authorizes a commis- 
sion to fix and adjust the details of legislation that be- 

293 



PROVISIONS FOR CREATION OF COMMISSION 

comes an administrative duty properly belonging to the 
executive department. But such duties must be as clearly 
defined as is practicable, in view of the nature of the 
subject matter. Now with reference to the require- 
ment that a standard must be fixed by Congress. No 
standard so convenient and practicable as one embody- 
ing prices is conceivable; so that we should soon have 
in the forefront of the legislation the assumption by 
Congress of the price-fixing function applied to each 
of over 8,000 articles of merchandise moving in inter- 
state commerce. To appreciate the overwhelming mag- 
nitude of such power, we only have to reflect that the 
Interstate Commerce Commission has more than it can 
do attending only to the prices to be charged for trans- 
portation. There is a fixity and steadiness about trans- 
portation rates not found in the price of any commodity 
transported. And by the decision just referred to no 
change or readjustment in the price of any article could 
be made without notice to all the parties to be affected 
and a hearing on evidence. Therefore, if we have 
reached a point where we must regulate the industries 
of the country through a commission, and this bill con- 
tains the proper framework for that form of regula- 
tion, it should provide for a commission of about five hun- 
dred instead of seven members ; and the appropriation for 
the first year of its existence should read in terms of 
millions instead of thousands. 

The original scheme of our Government was for rule 
by laws interpreted and enforced according to their true 
meaning; and that scheme has been thus far kept con- 
stantly in view. That details of administration have 
been provided for by rules and regulations adopted and 
put in force by executive departments under power 
clearly defined argues nothing inconsistent with per- 

294 



PROVISIONS FOR CREATION OF COMMISSION 

sistent adherence to the original scheme. Such minor 
laws cannot be arbitrary; they must rest upon some 
standard fixed in the statute conferring the authority. 
The executive officer or commission may have a con- 
siderable latitude of discretion in reaching conclusions 
of fact; but, after all, it can do little more than make a 
measurement, or mathematical ascertainment, or phys- 
ical examination, either by personal inspection or upon 
taking evidence. Nor would a necessity for scientific in- 
vestigation and finding render the conferring of such 
power invalid. The case of Field v. Clark (143 U. S., 
649), and that of Union Bridge Co. v. United States 
(204 U. S., 364) are instructive authorities on the whole 
subject. But it will be seen that these cases go as far 
as it is possible to go toward sanctioning pure delega- 
tions of the law-making function. A reading of the 
opinions will also show how promptly the court would 
declare to be invalid an enactment which failed to fix 
some prehensible and unmistakable standard for execu- 
tive guidance. 

The author of this bill, seeming to realize the force 
of public opinion adverse to the fixing of prices through 
commissions, has withheld that function from the pro- 
posed commission except in one or two unimportant items 
of power sought to be conferred upon it. But he has 
not only omitted to provide that, but has not, with respect 
to most of its important functions, given it any stand- 
ards, other than its own will and judgment, to be exer- 
cised, sometimes judicially, and in other instances, 
legislatively. 

The first section provides for the appointment, re- 
moval, qualifications, compensation, etc., of the mem- 
bers. Seven members are to constitute the commission. 
That section also authorizes the commission to pre- 

295 



PROVISIONS FOR CREATION OF COMMISSION 

scribe rules and regulations for conducting its business. 

Section 2 confers broad powers of investigation, in 
any part of the United States and in foreign countries, 
either as a body or by individual members. 

Section 3 would transfer to the commission all the 
functions, etc., of the Bureau of Corporations. 

Section 4 places under its jurisdiction "every per- 
son, firm, copartnership, corporation or joint stock asso- 
ciation now or hereafter organized within the United 
States, and doing business therein, whose annual gross 
receipts within the United States, including the annual 
gross receipts of its subsidiaries exceed $5,000,000 and 
which is engaged in interstate or foreign commerce, ex- 
cepting corporations subject to *An Act to regulate 
commerce' approved February fourth, eighteen hun- 
dred and eighty-seven, as amended, but including pipe 
line companies," and provides that they shall be subject 
to the jurisdiction of the commission. 

It may be here noted that other parts of the bill 
would confer upon the commission very extensive 
powers over business regardless of the amount of gross 
income, and regardless of whether the persons, etc., 
carrying on the business are engaged in interstate com- 
merce. But that would be immaterial, since the right 
to engage in interstate and foreign commerce is, as 
already shown, a common right; hence the classification 
is of no legal importance. 

Section 5 requires the filing with the commission by 
every firm, corporation, etc., subject to its jurisdiction 
of written statements under oath, "showing such facts 
as to its organization, conduct, financial condition, man- 
agement, the scope of its business operations, security 
holders and officers as may be prescribed by the com- 

296 



PROVISIONS FOR CREATION OF COMMISSION 

mission" and like statements are to be filed by sub- 
sidiaries. 

Sections 6 and 7 read as follows: 

Sec 6. That all persons, firms, copartnerships, corporations, 
or joint stock associations subject to the jurisdiction of the com- 
mission, including their subsidiaries, shall from time to time 
furnish to the commission such information as to their or- 
ganization, conduct, management, security holders, financial con- 
dition and business transactions as the commission may direct 
and in such form as the commission may require and the 
commission is duly authorized to gain access to all records, 
books, accounts, memoranda and papers, including the records 
of the executive and other committees. 

Sec 7 That the commission may require of any person, 
firm, copartnership, corporation, or joint stock association or- 
ganized or doing business in the United States, and which is 
engaged in interstate or foreign commerce, such information as 
may in the discretion of the commission, be necessary and proper 
to determine whether said person, firm, copartnership corpora- 
tion or joint stock association is subject to jurisdiction ot 
the commission. 

We may pause here without going to other sections 
for more extensive, inquisitorial, and visitorial powers, 
and inquire as to the purpose of all this, and whether 
the purpose be within any constitutional power of Con- 
gress. And we find, by glancing ahead, that the com- 
mission is to exercise the important judicial and legis- 
lative powers prescribed in sections 22, 23 and 24, which 
read as follows: 

Section 22. That whenever, after a full hearing upon a com- 
plaint made or upon its own initiative, the commission shall be 
of the opinion that any person, firm, copartnership corporation, 
or joint stock association has violated the provisions of this 
Act or of "An Act to protect trade and commerce against un- 
lawful restraints and monopolies, approved July second, eighteen 
hundred and ninety, or of any law of the United States 
respecting the regulation of interstate or foreign commerce, 
except of "An Act to regulate commerce," approved February 
fourth, eighteen hundred and eighty-seven, and amendments 
thereto the commission shall order such person, firm, copart- 
nership, corporation, or joint stock association to cease and 
desist from such violation to the extent to which the com- 
mission finds the same to exist. The commission shall also 

297 



iPROVISIONS FOR CREATION OF COMMISSION 



prescribe rules and methods for the conduct of the business 
of such person, firm, copartnership, corporation, or joint stock 
association. If, at the expiration of a time fixed by the 
commission, after full hearing upon a complaint made or 
upon its own initiative, the commission shall be of the opinion 
that the said person, firm, copartnership, corporation, or joint 
stock association has continued to violate the provisions of 
this Act or of "An Act to protect trade and commerce against 
unlawful restraints and monopolies," approved July second, 
eighteen hundred and ninety, or of any law of the United 
States respecting the regulation of interstate or foreign com- 
merce, except of "An Act to regulate commerce," approved 
February fourth, eighteen hundred and eighty-seven, and amend- 
ments thereto, or that it has failed to comply with the rules 
and methods prescribed by the commission for the conduct of 
the business, said commission is authorized to forthwith appoint 
a receiver to take charge of the property of said person, firm, 
copartnership, corporation, or joint stock association, and require 
of him such bond and security as it may deem proper. Such 
receiver, under the direction of the commission, shall take 
possession of the books, records and assets of every description 
of such person, firm, copartnership, corporation, or joint stock 
association and conduct the business in the name of the com- 
mission and under such rules and regulations as it may prescribe. 

The appointment of a receiver as provided in this section 
shall not in any way interfere with the prosecution of any 
criminal suit against any person, firm, copartnership, corporation 
or joint stock association brought by the Department of Justice 
or by the commission under the provisions of this Acty or of "An 
Act to protect trade and commerce against unlawful restraints 
and monopolies," approved July second, eighteen hundred and 
ninety, or of any law of the United States respecting the 
regulation of interstate or foreign commerce, except of "An 
Act to regulate commerce," approved February fourth, eighteen 
hundred and eighty-seven, and amendments thereto, or with any 
suit herein provided for. 

Sec. 23. That whenever any corporation or joint stock asso- 
ciation shall have been or shall be placed in the hands of a 
receiver as provided in Section 22 of this Act, the receiver 
shall call a meeting of the shareholders of such corporation or 
joint stock association by giving notice thereof for thirty days 
in a newspaper published in the town, city, or village where 
the business of such corporation or joint stock association was 
carried on ; and if no newspaper is there publisehd, in the 
newspaper published nearest thereto. At such meeting the 
shareholders shall determine whether they will elect ofificers for 
the corporation or joint stock association, who will conduct its 
business as required by the commission, or whether the receiver 
shall be continued and shall wind up the affairs of such cor- 
poration or joint stock association, and in so determining the 
said shareholders shall vote by ballot in person or by proxy, 

298 



PROVISIONS FOR CREATION OF COMMISSION 



each share of stock entitling the holder to one vote, and the 
majority of stock in value and number of shares shall be nec- 
essary to determine whether the said receiver shall be continued 
or whether officers shall be elected for the purpose of continu- 
ing the business of such corporation or joint stock association, 
according to the rules prescribed by the commission. In case 
the said meeting shall, by the vote of the majority of the stock 
in value and number of shares, determine that officers shall be 
elected to continue the business of said corporation or joint 
stock association, the said meeting shall thereupon proceed to 
elect officers, voting by ballot, in person, or by proxy, 
persons who shall receive votes representing at least a majority 
each share of stock entitling the holder to one vote, and the 
of stock in value and number of shares, shall be declared the 
officers for the purposes herein provided ; and whenever such 
officers shall have executed and filed a bond to the satisfaction 
of the Industrial Commission conditioned for the payment and 
discharge in full of each and every claim incurred during the 
period of such receivership that may thereafter be proved 
and allowed by and before the commission or its duly qualified 
representatives, the receiver shall thereupon deliver to such 
officers all the property of such corporation or joint stock 
association then remaining in the hands or subject to the order 
and control of said commission and said receiver ; and thereupon 
the said receiver shall be discharged from any and all liabilities 
to such corporation or joint stock association, and to each and 
all creditors and shareholders thereof, and said receivership 
shall cease, and the persons elected as such officers shall hold 
and control the property of such corporation or joint stock 
association for the benefit of the shareholders of such corpora- 
tion or joint stock association, and shall conduct the business 
of the same according to the laws provided in such cases. The 
election of officers and the resumption of business, as herein 
provided for, shall not in any wise interfere with any sub- 
sequent proceedings by the commission for the appointment of a 
receiver or other proceedings against such corporation or joint 
stock association. 

Sec. 24. That whenever the business of any person, firm, or 
copartnership shall have been placed in the hands of a receiver, 
as provided in section twenty-two of this Act, or whenever the 
stockholders of a corporation or joint stock association, at a 
meeting, as provided for in section twenty-three of this Act, 
shall have determined that the receiver appointed by the com- 
mission shall continue and wind up the affairs of such corpora- 
tion or joint stock association, or whenever such majority fails 
to appear and vote at such meeting and such receiver, under the 
direction of the commission, shall have taken possession of the 
books, records and assets of such person, firm, ^ copartnership, 
corporation, or joint stock association, said receiver shall give 
notice to the creditors of such person, firm, copartnership, 
corporation, or joint stock association by publishing the same for 

299 



PROVISIONS FOR CREATION OF COMMISSION 

thirty days in a daily newspaper at the seat of government and 
in five other cities, to be designated by the commission, of a 
time and place designated in said notice when he will receive 
and hear proof on the part of the creditors of such person, 
firm, copartnership, corporation, or joint stock association; and 
the receiver shall in the meantime proceed to collect all debts, 
dues and claims due to the' said person, firm, copartnerhsip, 
corporation, or joint stock association; and if any part of the 
property of said person, firm, copartnership, corporation, or 
joint stock association consists of real estate he shall apply 
to the United States district court in and for the State in 
which such real estate or any part thereof is situated for an 
order for the sale of such real estate, specifying the time 
and place of said sale and the manner in which the same 
shall be made, whether upon sealed bids or open auction ; and 
the said receiver shall at the time and place so provided sell 
such real estate in the manner provided in said order. All other 
property of the said person, firm, copartnership, corporation, or 
joint stock association shall be sold under the direction of the 
commission, notice thereof to be given as prescribed by said 
commission. After the sale of the property, real, personal, and 
mixed, of said person, firm, copartnership, corporation, or joint 
stock association and the receiving of proof of the creditors 
of such person, firm, copartnership, corporation, or joint stock 
association pursuant to the notice hereinbefore provided for, 
said receiver shall then distribute the proceeds of the assets 
of any such person, firm, copartnership, corporation, or joint 
stock association as follows : 

First — To pay the expenses of the execution of the trust. 

Second. To pay the debts so proved against such person, 
firm, copartnership, corporation, or joint stock association. 

Third. The balance ratably among the owners of or stock- 
holders or shareholders in such business in proportion to the 
interest of each. Such distribution shall be made from time 
to time as the proceeds shall be received and as shall be deemed 
advisable by the said commission or said receiver. 

In criticizing the Lenroot Bill, was shown the ab- 
sence of power in Congress to take over and administer 
the estate of a going corporation in the manner there 
proposed, even through a judicial agency. But this 
scheme goes far beyond that. It embraces not only 
taking over the property and disposing of it through 
a non- judicial body but taking over the management 
of private parties, firms, copartnerships, corporations 
and joint stock associations, as well as their liquidation 

300 



PROVISIONS FOR CREATION OF COMMISSION 

as is done in insolvency or bankruptcy proceedings. All 
this by a non- judicial body, which need only decide 
upon summary and exparte investigation that the law 
or one of its own rules has been violated, such decision 
being itself no more nor less than a judicial act. Nor 
does the proposed power of the commission stop here. 
If its edicts and mandates are not fully obeyed, it is to 
proceed to what amounts to a dissolution, if the party 
proceeded against be a corporation or joint-stock asso- 
ciation, and a distribution of its assets may be made, 
first, to the creditors, and, second, of any surplus, among 
the stockholders. 

Whether a court, constitutionally established by act 
of Congress could, for any such cause or causes, exer- 
cise these extraordinary powers in any form of judicial 
proceedings it is scarcely necessary to discuss. Such a 
court certainly could not do so in the way here pro- 
posed, because, even in the exercise of acknowledged 
jurisdiction, courts must give parties the benefit of due 
process of law, comprising the presentation of plead- 
ings, a trial in due course, opportunity to defend, to be 
confronted with wijnesses, etc. 

The full extent of Congressional power to establish 
and empower statutory tribunals has never been fully 
defined, but the courts have rendered several impor- 
tant decisions wherein was pointed out the limitations 
and defects of their power. And decisions upon the 
meaning of due process of law are very numerous. If 
this bill created a court, gave it the power to render the 
decisions which it is here proposed that the commis- 
sion shall render, and provided that the court should 
proceed as is here provided, the Act would even in that 
case be unconstitutional. 

We will just assume, for the argument, that in lieu 

301 



PROVISIONS FOR CREATION OF COMMISSION 

of these provisions the author of the bill had provided 
that any district court should exercise all these func- 
tions, in addition to its present powers. (We are now 
passing by the objection that the bill does not establish 
any line between the commerce power conferred by the 
Constitution and that retained within the jurisdiction 
of the States.) The objections successfully urged in 
Boyd V. United States (116 U. S., 616) were based on 
the clause of the Constitution forbidding unreasonable 
searches and seizures ; and of course they could not 
have been removed by act of Congress. 

Since it is claimed that important differences exist 
herein between the constitutional rights of corporations 
and those of individual citizens, we should first examine 
that point. It will be found that at least one consti- 
tutional prohibition is inapplicable to corporations and 
therefore cannot, from the nature of the case, afford 
them any protection. The part of the Fourteenth 
Amendment relating to abridgment of privileges and 
immunities of citizenship clearly has no application to 
a corporation outside the state or its residence. But 
as to the guaranty against unreasonable searches and 
seizures in the Fourth Amendment, and against depriva- 
tion without due process of law and taking without com- 
pensation in the Fifth, a corporation is accorded pro- 
tection with respect to strictly private affairs as are 
individuals, though it has not the constitutional right 
to refuse to submit its books and papers for an examina- 
tion at the suit of the State. And while Congress may 
not have general visitorial power over State corpora- 
tions, its powers in vindication of its own laws are the 
same as if the corporations had been created by an act 
of Congress. Such is the substance of the court's views 
in Henkel v. Hale (201 U. S., 43), as against the asserted 

302 



PROVISIONS FOR CREATION OF COMMISSION 

power of a Federal court. By the doctrine of that case, 
there is scarcely a limit upon the power of a court when 
properly authorized by Congress to compel the produc- 
tion of books and papers. But clearly the power must 
be exercised with a definite purpose in view, a purpose 
to accompHsh a result within the court's jurisdiction. 
There is not a word in the views of the court, or in 
the decision in Henkel v. Hale to jutsify a behef that 
the broad unrestricted powers to investigate corpora- 
tions attempted to be conferred by the Bristow Bill 
could be conferred by Congress, even upon a court. 
And it is clear from the opinion and decision and au- 
thorities cited, and still clearer in the case of Boyd v. 
United States (116 U. S., 616) that for no purpose, 
nor under any circumstances, could a court be em- 
powered to make the investigations, searches and 
seizures, and use the means and instrumentalities pro- 
vided for and designated in the bill for an irresponsible 
commission. In the Boyd case, the constitutionality of 
a provision in an act of Congress authorizing courts of 
the United States in revenue cases, on motion of the 
Government attorney, to require the defendant or 
claimant to produce in court his private books, invoices 
and papers, or else the allegations of the attorney should 
be taken as confessed, was under consideration, and the 
court held it unconstitutional. There, the forfeiture of 
goods might be the consequence of failure to comply; 
here it is intended and provided that the consequence 
shall be a forfeiture of the right to engage or continue 
in interstate commerce and the incurring of important 
penal consequences in addition. But the court declared 
important principles which should be kept constantly 
in mind as a guide and warning to Congress when 
attempts are made to override private rights and invade 

303 



PROVISIONS FOR CREATION OF COMMISSION 

private affairs for the purpose of discovering grounds 
upon which to criminally prosecute individuals. The 
court declared that it does not require actual entry 
upon premises and search for and seizure of papers to 
constitute an unreasonable search and seizure within 
the meaning of the Fourth Amendment, and that a com- 
pulsory production of a party's private books and papers 
to be used against himself or his property in a criminal 
or penal proceeding, or for a forfeiture, is within the 
spirit and meaning of the Amendment ; that it is equiva- 
lent to a production of papers to make the non-produc- 
tion of them a confession of the allegations which it 
is pretended they will prove; that a proceeding to for- 
feit a person's goods for an offense against the laws, 
though civil in form, and whether in rem or in per 
sonam, is a "criminal case," within the meaning of that 
part of the Fifth Amendment which declares that no 
person "shall be compelled, in any criminal case, to be 
a witness against himself." 

As previously stated, no attempt to confer the same 
or analogous powers upon a commission has been here- 
tofore made. But in Harriman v. Interstate Commerce 
Commission (211 U. S., 406) there was a strong inti- 
mation as to how the court would view such legislation 
as is here proposed. In the opinion Mr. Justice Holmes 
said : "How far Congress could legislate on the subject 
matter of the questions put to the witnesses was one 
of the subjects of discussion, but we pass it by. Whether 
Congress itself has the unlimited power claimed by the 
Commission, we also leave to one side. It was inti- 
mated that there was a limit in Interstate Commerce 
Commission v. Brimson, (154 U. S., 447, 478, 479). 
Whether it could delegate the power, if it possessed it, 
we also leave untouched, beyond remarking that so un- 

304 



PROVISIONS FOR CREATION OF COMMISSION 

qualified a delegation would present the constitutional 
difficulty in most acute form. It is enough to say that 
we find no attempt to make such a delegation anywhere 
in the Act." 

There is also in the recent case of Interstate Com- 
merce Commission v. L. and N. Railroad Co. (decided 
January 20, 1913), much to indicate a disposition on 
the part of the court to restrict the powers of statutory 
tribunals, with respect to the means which they may 
employ to obtain evidence to be used as a basis for their 
decisions. 

Section 5 provides that ''every firm, copartnership, 
corporation or joint-stock association subject to the 
jurisdiction of the Commission shall * * * file with the 
Commission written statements under oath, showing 
such facts as to its organization, conduct, financial con- 
dition, management, the scope of its business operations, 
security holders, and officers as may be prescribed by 
the Commission." In Section 7 we find the same search- 
ing investigation into strictly private affairs, provided 
for in order to ascertain if the Commission has juris- 
diction. Elsewhere in the bill the intended jurisdiction 
is so distinctly prescribed that no investigation is neces- 
sary, beyond the ascertainment of the gross receipts, 
with which the matters named in said Sections 5 and 7 
have no proper connection. Every "firm, copartner- 
ship," etc., is made liable to the "third degree" of in- 
vestigation, though no charge has been made or accusa- 
tion preferred. And, in the Boyd case, the power was 
denied when attempted to be exercised by virtue of 
judicial process. Here it is proposed to confer the 
authority upon a non- judicial agency. 

A commission is merely a collective agent of the 
Government which can do no act unless within the 

305 



PROVISIONS FOR CREATION OF COMMISSION 

power of Congress ; but if it be within the power the 
method of its procedure must be prescribed, so that it 
may appear whether the means adopted for the attain- 
ment of that object be appropriate and necessary. 

Ignoring for the moment the purpose of determining 
its jurisdiction, and supposing that the investigation to 
be for the purpose of ascertaining whether the parties 
to be investigated have violated some of the numerous 
inhibitions of "this Act," or the Anti-trust, or some 
other statute, it is clear that such an inquisition is only 
within the province of a grand jury. And the attempt 
to empower such a commission to institute it and con- 
duct it is not only forbidden by the provisions above 
referred to, but is objectionable as not being due process 
of law. 

There are no decisions directly in point by Federal 
courts because no such statute has ever been passed. 
And it might be added that no such legislative proposal 
has been heretofore seriously urged. But the Supreme 
Court has, in the cases before referred to, given ex- 
pression to views which leave no doubt as to what 
its decision would be on these provisions of this bill. 

In the light of the constitutional prohibuion and de- 
cisions we are to intelligently read section 8 of the bill, 
as follows: 

Sec. 8. That the commission hereby created shall have au- 
thority when in its opinion such information will be necessary 
or useful to the discharge of its duty, to ascertain the cost 
of producing articles of substantially the same quality and 
kind in this country and in foreign countries. In making such 
investigations it shall ascertain, so far as practicable, the wages, 
hours of service, and the efficiency of labor employed, the stand- 
ards of living of laborers, cost of materials, the fixed charges, 
depreciation upon the true value of the capital invested, and 
all other items necessary to determine the true cost of the 
finished product. Said commission shall ascertain the market 
conditions and the prices at which products are sold in various 

306 



PROVISIONS FOR CREATION OF COMMISSION 

countries as compared with prices of the products sold in the 
United States by any person, firm, copartnership, corporation, 
or joint stock association subject to its jurisdiction. The com- 
mission shall have the power to call upon any of the existing 
departments or bureaus of the Government for information on 
file in such departments or bureaus which it may require in 
connection with the work it is authorized to do by this Act; 
and it shall be the duty of every such department or bureau of 
ihe Government to furnish such information. The commission 
may, from time to time, hold hearings at such places as it may 
designate to determine industrial, commercial, and labor condi- 
tions in relation to the cost of production and transportation. 
The commission may in any investigation, upon the request of 
any witness examined, take such evidence at a secret session, 
and the testimony of any witness in regard to any secret process 
used in the production of any article shall not be reduced to 
writing by the commission, but it may require any other testimony 
to be reduced to writing for its guidance. At any investigation 
authorized by this Act it may obtain such assistance or informa- 
tion as it may deem advisable for its convenience, and in case 
the assistance or information sought is obtained said commission 
shall not be required to divulge the names of persons furnishing 
such assistance or secret information: Provided, That no 
assistance or information so secured under the provisions of this 
section from any person, firm, copartnership, corporation, or 
joint stock association shall be made public in such manner as 
to be used by any business competitor or rival. 

Passing by the objection that there are not enough 
men and women now in the Government's service to 
thoroughly do this work, and that the present number 
would have to be more than doubled, we come to the 
question of why it should be done at all? To this the 
bill contains no answer. Neither the Anti-trust law, 
nor any statute, nor "this Act" discloses any legitimate 
use that could be made of the result of such illimitable 
but the unconstitutionality of those provisions is so well 
understood that the heads of that bureau have been at 
all times very careful not to seek the aid of a court, or 
to press their efforts far enough to compel corporations 
under investigation to seek the protection of a court. 
What they have discovered and developed outside of 
inspection and detective service has been with the con- 

Z^7 



PROVISIONS FOR CREATION OF COMMISSION 

sent and voluntary co-operation of the corporations 
investigated. 

Of course, Congress has power to have a census 
taken every ten years. Such periodical limitation is, 
however, an implied prohibition upon continuous cen- 
sus taking. But no justification for Section 8 can be 
claimed under that clause, since the bill makes no pro- 
vision for a classification of the results of the investi- 
gations; and while it provides (Section 9) for reports 
to Congress, it does not provide for reports of details ; 
in fact, leaves entirely to the discretion of the Com- 
mission what it shall report and the forms of its reports. 

Section 10 provides that the Commission 

may by regulation require uniform or comparable methods of 
accounting by the persons, firms, copartnerships, corporations, 
and joint stock associations subject to its jurisdiction, and may 
prescribe the forms of accounting necessary to that end. 

The only supposable justification for this provision 
is found in the words "subject to its jurisdiction" and 
the question of such jurisdiction as we have seen is to 
be determined arbitrarily by the Commission itself, re- 
gardless of limitations upon the power of Congress. 
What has the manner in which books are kept to do 
with interstate commerce? If this is not merely an 
attempt to evade the Constitution, why not just have 
Congress declare this duty as a regulation and impose 
a penalty for non-compliance. We should then see 
how long it could stand against an attack in the courts. 

The fact that the Interstate Commerce Commission 
exercises an analogous power, expressly conferred, is 
nothing to the point. Uniform bookkeeping by carriers 
is essential to the duties of the Commission in formulat- 
ing the regulations which it has indisputable power 
to make. But compliance with the requirement here 

308 



PROVISIONS FOR CREATION OF COMMISSION 

* 

would be as impossible as enforcement, for obvious 
reasons. 

Not satisfied with the provisions previously quoted 
for investigation relative to operations, values, finan- 
cial conditions, etc., provision is made in Section 12 for 

inquiry into the work of all persons, firms, copartnerships, cor- 
porations, and joint stock associations included within this Act, 
and which are engaged or which propose to engage in inter- 
state or foreign commerce, and into the conduct of business 
of all persons, firms,- copartnerships, corporations, and joint 
stock associations engaged in such commerce, and to that end 
it shall have the power to subpoena and examine undej oath 
individuals. 

Under this all-embracing provision, the temporal affairs, 
without limitation, of nearly everybody would be se- 
questered into the hands of the Commissioners. No 
activity which they might construe the term "work" 
to cover would escape. It is scarcely necessary to say 
more of that section. 

By the provisions of Section 13, barring an exception 
of no importance herein, we find an extreme applica- 
tion of the fallacious idea, prominent in all these bills; 
that by the classification of persons (natural and artifi- 
cial) into two classes, the one engaged and the other 
not engaged in interstate commerce the former may 
be excluded from participation therein upon failure to 
comply with any requirement Congress may prescribe, 
however remote the act of compliance from any inter- 
state commerce transaction or movement. Here it is 
assumed that Congress may concern itself as to the 
solvency of any corporation or joint-stock association 
in the enjoyment, or who seeks the benefits, of interstate 
commerce. Also it is assumed that a disparity of even 
ten percentum between capital stock and "fair and 
reasonable value of property on hand" is a matter to 

309 



PROVISIONS FOR CREATION OF COMMISSION 

be looked into and provided against by the Commission, 
and that for any dereUctions or discrepancy therein, the 
Commission shall take steps to enforce the forfeiture 
and exclusion from interstate commerce. 

The draftsman of the bill, perhaps weary of specify- 
ing in detail, here simply provides how the Commission 
shall become qualified to perform its duties thus im- 
posed. He places the burden upon the corporations and 
associations to be affected. It is provided that 

For the purpose of enabling the commission to determine 
whether a corporation or joint stock association has violated 
the provisions of this section or of section fourteen, such cor- 
poration or joint stock association shall submit to the Com- 
mission such proof as the Commission may require. 

By section 25 a failure to submit to the Commission 
such proof as it might require would involve a forfeiture 
which might amount to $5,000. 

But the hands of the Commissioners would reach the 
activities of persons attempting to organize a corpora- 
tion and control their conduct, agreements and acts as 
individuals and promoters even before the corporate 
entity has come into existence, so that it could even 
attempt to engage in commerce. The compensation of 
promoters is sought to be regulated by Congress through 
the Commission (Section 14). Any one starting out to 
form a corporation, if this bill should pass, would there- 
after have to consult, not the State law, as to what he 
could legally do herein, but the provisions of "this Act." 
He would have to consult Section 14, and also keep an 
eye on the penalties prescribed in Section 25. 

Sections 15, 16, 17, 18 and 19 embody the provisions 
of the Lenroot Bill which propose legislation tied to 
the scheme of shifting the burden of proof from the 
complaining party to the defense, though the form here 

310 



PROVISIONS FOR CREATION OF COMMISSION 

adopted differs considerably from that of the Lenroot 
Bill. 

The author of this bill appears to have taken a hint 
from the objections taken to the other form, and seeks 
to obviate them by more direct statement and intel- 
ligible arrangement. But the inherent remoteness from 
that which Congress has power to regulate remains. 

Section 15 is substantially the same as the new Section 
9 which the Lenroot Bill would add to the Anti-Trust 
Act, and would affect it as already shown. The only 
atempt to connect the inhibitions of Sections 16, 17, 
18 and 19 with interstate commerce is by the use of 
mere forms of expression varying slightly in each sec- 
tion. In Section 16 it reads, "any person, firm, copart- 
nership, corporation, or joint-stock association that 
either as owner, agent, or in any other capacity or rela- 
tion attempts to prevent or restrict competition in inter- 
state or foreign commerce by restraining or preventing 
in any manner either directly or indirectly, any one 
from purchasing, leasing, licensing or obtaining any ar- 
ticles, or using such articles ^ ^ ^ shall be deemed 
guilty of unreasonable restraint of interstate or foreign 
commerce." What was previously said about abortive 
attempts to bring matters within the regulative power 
of Congress which are inherently beyond it, by a resort 
to mere phraseology and forms is equally applicable 
to the same attempts in this section. 

The acts, conduct, etc., here condemned are done by 
monopolies or combinations formed to restrain or 
monopolize trade and by others as well. But while these 
may characterize the operations under a contract or 
combination in restraint of trade, they seldom alone 
constitute it or tend to restrain interstate trade. If it 
were the wish of Congress to reach and punish these 

311 



PROVISIONS FOR CREATION OF COMMISSION 

isolated acts where found inherent in interstate trans- 
actions, that could be done. But the language of the 
Act would have to be less vague than here used. And 
it would not be necessary or even proper to characterize 
them as restraints of trade. 

Many such exclusive contracts, however, as are here 
aimed at were held to be indirect restraints and there- 
fore outside the broad and sweeping terms of the Anti- 
trust Act, prior to the Standard Oil and Tobacco Com- 
pany decisions. 

These observations are equally applicable to Sections 
17, 18 and 19. 

Section 17 applies the same liguistic formula to dis- 
criminations as to prices in selling, leasing, licensing, 
or bailing with no substantial variation from the terms 
employed in the Lenroot Bill. Section 18 likewise ap- 
plies the formula to doing business otherwise than in 
one's own name, and to supplying or offering to supply 
articles "at or below the cost of production and dis- 
tribution." Section 19 would apply it to the fixing of 
"an unreasonably high price upon any article which 
enters into the manufacture of an article which is used 
in the production of any other article." Just what this 
is aimed at, and how far it would reach, is not clear. 

Its effect and tendency to favor the railroads and large 
combinations by omitting to mention price and traffic 
agreements was also elsewhere shown. 

Section 20 makes a conspicuous attempt to authorize 
the Commission to exercise purely discretionary legis- 
lative powers by suspending the time when "this Act" 
shall take effect in certain cases. 

This section also closes as does Section 10 added to 
the Anti-trust Act by the Lenroot Bill, with this clause : 

312 



PROVISIONS FOR CREATION OF COMMISSION 

The foregoing enumeration of acts, conduct, methods and 
devices in sections sixteen, seventeen, eighteen and nineteen, 
which it is herein declared shall be deemed unreasonable, does 
not include and shall not be construed to exclude, any other 
acts, conduct methods, or devices which are or may be un- 
reasonable. 

Section 21 relates to the decisions of the Commission 
pursuant to its investigations. It avoids language which 
would give such decisions the form or similitude of 
judicial decrees which they would really be if effective 
at all; it provides that "the determination of the Com- 
mission shall have the same effect as though made by 
Congress itself." A pertinent question arises as to the 
effect of a judicial decree rendered by a legislative body, 
a subject which need not be here discussed. 



313 



CHAPTER XIV 

WHAT CONGRESS CAN DO 

The plenary and searching power of the Federal Gov- 
ernment in enforcing its laws enacted to protect inter- 
state commerce, was pointed out and emphasized in the 
Northern Securities case. And that such laws may 
nullify all contracts which interfere, or tend to inter- 
fere with the freedom of that commerce was declared 
in that, in the Addystone Pipe Co., and in other cases. 
And though a State may grant a charter of incorpora- 
tion, its validity may be tested in a Federal court by 
comparison with the spirit of statutes, such as the Anti- 
trust Act, as regards any conflict between them. More- 
over, such test could be judicially made the moment 
such charter was granted by a State legislature or articles 
of incorporation were filed under general laws, if Con- 
gress should give the remedy to the Government or to 
any officer representing it and prescribe the procedure. 
It would not be necessary to wait until commerce was 
actually restrained or interfered with. It is not neces- 
sary for the Federal Government to descend into the 
domain of State jurisdiction, or concern itself about 
wrongs done to minority stockholders, with a view to 
giving them a remedy by injunction, as has been pro- 
posed. The Federal Government has the same power 
over State-created corporations in the exercise of any 
of its powers and in the enforcement of its remedies 
through its own courts, that any State has. (Henkel v. 

314 



WHAT CONGRESS CAN DO 

Hale, 201 U. S., 43.) It is not necessary, even if it 
were possible to exclude the corporation from interstate 
commerce in the absence of what may be termed an 
interstate-commerce reason. It can be enjoined from 
the exercise of any self-assumed power or function, the 
exercise of which would interfere with the free flow 
of commerce. 

Congress can impose reasonable conditions to the 
making of interstate shipments, enforceable by appro- 
priate action. Section 6 of the Anti-trust Act provides 
for forfeiture of property in transit of combinations in 
restraint of trade. But the provision can only be en- 
forced by a special proceeding instituted by the Gov- 
ernment, wherein a judgment of forfeiture must be 
first obtained. It is an action at law, penal in form and 
effect, and cannot be prosecuted, along with the action 
for the equitable remedy for injunction, nor would the 
decision in the equity suit establishing the illegality of 
the association be availat)le in the legal action. For this 
reason, and because of the labor and inconvenience, far 
outweighing, any financial results, no action has been 
prosecuted to a conclusion to enforce that section. But 
the right to stop goods in transit, and forfeit and sell 
them, and appropriate the proceeds, is one which could 
be very effectively exercised, if a plain speedy method 
of procedure were given. 

A more effective remedy than that just mentioned, 
or any contained in any bill thus far proposed, abides 
in the present law, unused. This statement has reference 
to the power of the court to nullify and devitalize all 
constating instruments of corporations, and all con- 
tractual forms of arrangement between and among the 
defendants constituting the basis of conduct culminat- 
ing in restraint. The statute expressly declares the 

315 



WHAT CONGRESS CAN DO 

illegality of contracts, etc., and such declaration char- 
acterizes and colors every step and all conduct of the 
parties from inception to consummation. The Court 
recognized and exercised its power to enjoin the voting 
of stock, payment and receipt of dividends, in short, 
the doing of any act by which a benefit could accrue 
from ownership of stock in the Northern Securities case. 
Its action was interpreted in Harriman v. Northern 
Securities Co. to mean what has just been stated. But 
in the Standard Oil and Tobacco Co., and in one or 
two subsequent cases, the court appears to have been 
appalled at the magnitude of interests to be affected 
by the exertion of its full power, and to have halted 
and turned aside at the point where its opportunity was 
greatest to serve public in preference to private interests. 
In Northern Securities Co. v. U. S. (193 U. S., 197), 
the decree was very sweeping in its prohibitions, leav- 
ing the defendants to untangle themselves as best they 
could, from the perdicament in which the law in its 
application placed them. Harriman v. Northern Securi- 
ties Co. (197 U. S., 244) was a case in which one of 
the parties to the same combination had sought relief 
in equity from an advantage which he alleged one or 
more of his co-defendants had taken or was about to 
take of the situation brought about in the formation of 
the Northern Securities Company, because of the pos- 
session of certain stocks transferred to them in con- 
summation of the arrangement which had been held 
illegal. The court refused to entertain the complaint 
for any purpose, holding that the law left parties to 
illegal transactions where it found them, and that equity 
followed the law. 

It is difficult or impossible, to see how the Supreme 
Court acquired the power to dispose of the Oil and 

316 



WHAT CONGRESS CAN DO 

Tobacco cases as it did. In proper equity cases the 
Supreme Court can formulate such decrees on appeal 
as it sees fit, if within the scope of the pleadings. But 
cases arising under the Anti-trust law are not really 
equity cases at all. They are cases at law for which 
an equitable remedy is borrowed. In such a case, the 
power of the Supreme Court is purely statutory, that 
is to say, in disposing of the appeal it is limited by the 
remedial part of the statute. The equitable feature is 
purely technical and formal; the jurisdiction is bounded 
strictly by the wording of the statute. The judgment 
which the courts are authorized to pronounce in these 
cases are judgments of the law, and not decrees of the 
chancellor. 

The appellate jurisdiction of the Supreme Court is 
subject to, "such exceptions and under such regulations 
as the Congress shall make." Congress has in fact 
regulated the appellate jurisdiction in this class of cases, 
by defining and limiting the jurisdiction of the trial 
courts, because the appellate jurisdiction is referable to, 
and circumscribed by, the jurisdiction of the trial court. 
And the Supreme Court cannot authorize the trial court 
to do anything, or to proceed in any way, beyond the 
authority of the trial court in the first instance. The 
Constitution vests the appellate jurisdiction, to be regu- 
lated of course by Congress. It extends, in equity cases, 
to both law and fact. But it is mere appellate jurisdic- 
tion after all, and not even the Supreme Court can con- 
stitutionally change its character, or vest itself with 
original jurisdiction. The Supreme Court, can modify 
the decree of the lower court to the extent that it is an 
injunctive or prohibitory decree, or it may affirm it, or 
it may reverse it ; but it cannot wholly change its char- 
acter, or direct the lower court to give other than in- 

317 



WHAT CONGRESS CAN DO 

junctive relief. It cannot direct the creation of re- 
ceiverships, or reorganizations under the supervision of 
the court. Such a reorganization, consisting in the 
creation of new legal entities out of the fragments of 
others destroyed by the decree, is a legislative act, and an 
impossible function for a court, under the Anti-trust 
Act. 

Now, in the Standard Oil Case (221 U. S., 1) the 
Court concerned itself about the alleged property rights 
in bogus stocks issued, transferred and delivered in 
the process of building up the combination. The lower 
court had commanded the dissolution of the combina- 
tion, and directed the transfer by the New Jersey cor- 
poration, back to the stockholders of the various sub- 
sidiary corporations "entitled to the same" of the stocks 
which had been turned over to the New Jersey Com- 
pany in exchange for its stock. This part of the decree 
was expressly sanctioned by the Supreme Court. With- 
out prolonging the discussion, two things were here done 
which the Court lacked power to do, according to its 
own decisions. First, it gave legal force and effect to 
mere nullities for the benefit of those who had made 
transfers of stocks as part of an illegal scheme. Second, 
in order to do this, it assumed to exercise the manda- 
tory form of injunction, whereas its only power, accord- 
ing to the wording of the statute was to "prevent and 
restrain . o .. " (Sec. 4 Anti-trust Act.) In United 
States, v. American Tobacco Co. (221 U. S., 106) the 
Court fixed its attention still more earnestly and 
definitely upon the "property" involved, consisting of 
exactly the same character of transactions denounced 
and illesfalized in the Northern Securities case. The 
court, per Chief Justice, said (p. 185) : 

318 



WHAT CONGRESS CAN DO 

In considering the subject from both of these aspects, three 
dominant influences must guide our action ; * * * and, 
3, a proper regard for the vast interests of private property 
which may have become vested in many persons, as a result 
of the acquisition, either by way of stock ownership or other- 
wise, of interests in the stock or securities of the combination 
without any guilty knowledge or intent in any way to become 
actors or participants in the wrongs which we find to have 
inspired and dominated the combination from the beginning. 

The court then closes a lengthy paragraph in these 
words : "In view of the considerations we have stated, 
we leave the matter to the Court below to work out 
a compliance with the law without unnecessary injury 
to the public or the rights of private property." 

Dissenting from the disposition made of the case, as 
well as the reasoning upon which the court reached its 
conclusions, Justice Harlan said (page 190) : 

The case is to go back to the Circuit Court, in order that 
out of the elements of the old combination a new condition 
may be re-created that will not be in violation of the law. 
I confess my inability to find, in the history of this combination, 
anything to justify the wish that a new condition should be 
"re-created" out of the mischievous elements that compose the 
present combination, which, together with its component parts, 
have, without ceasing, pursued the vicious methods pointed out 
by the Court. If the proof before us — as it undoubtedly does — 
warrants the characterization which the Court has made of 
this monster combination, why cannot all necessary directions 
be now given as to the terms of the decree. In my judgment 
there is enough in the record to enable this court to formulate 
specific directions (as was done in the Northern Securities 
Case) as to what the decree should contain. Such directions 
would not only end this litigation, but would serve to protect 
the public against any more conscious wrongdoing by those 
who have persistently and "ruthlessly," to use this court's 
language, pursued illegal methods to defeat the Act of Congress." 

Justice Harlan had delivered the opinion in the North- 
ern Securities case, and had concurred in the Harri- 
man case, so there can hardly be a doubt as to what 
he had in mind in favoring directions which "would 
not only end this litigation, but would serve to protect 
the public against any more conscious wrong-doing," etc. 

319 



WHAT CONGRESS CAN DO 

The rendition of a judgment granting an injunction 
and perpetuating it should involve the complete nulli- 
fication of all the constating instruments of the com- 
binations, whether in corporate form or in other forms. 
The statute declares the nullity of the whole structure 
in these words, "Every contract, combination in the 
form of trust or otherwise, or conspiracy, in restraint 
of trade or commerce among the several States, or with 
foreign nations, is hereby declared to be illegal." Now 
whatever is prohibited by statute, and declared to be 
illegal, is utterly void, and is as destitute of validity as 
if it had never existed. What then becomes of the 
bonds executed, and stocks issued by the offending 
entities in the process of creating such prohibited ar- 
rangements as were condemned in the Oil and Tobacco 
and other cases? They should fall with the illegal 
arrangement itself. It is not within the power even of 
the Supreme Court to inject vitality or legality into 
them. What has just been said is merely an expression 
of the true meaning of the statute according to numer- 
ous decisions of the Supreme Court and the courts 
inferior to it, and is predicated upon the present law 
as construed and enforced in Continental Wall Paper 
Co. V. Voight (212 U. S., 227) and other cases. In 
Coppell V. Hall (7 Wall., 558), the Court said: 

Whenever the illegality appears, whether the evidence comes 
from one side or the other, the disclosure is fatal to the case. 
No consent of the defendant can neutralize its effect. A stip- 
ulation in the most solemn form to waive the objection would 
be tainted with the vice of the original contract, and void for 
the same reason. Wherever the contamination reaches, it de- 
stroys. The principle to be extracted from all the cases is that 
the law will not lend its support to a claim founded upon its 
violation. 

And in McMullen v. Hoffman (174 U. S., 664), the 
Court uses this strong language: 

320 



WHAT CONGRESS CAN DO 

The authorities from the earliest time to the present unani- 
mously hold that no court will lend its assistance in any way 
toward carrying out the terms of an illegal contract. 

In view of these decisions it is thouj^ht to be neces- 
sary to so amend the act that such directions to, and 
proceedings by, trial courts will hereafter be impossible. 
Section 4 should be amended anyhow, so as to confer 
power to issue injunctions in mandatory as well as 
prohibitive form, and that will render proper such a 
limitation of the language as will prevent the abuse Of 
that form exemplified in the recent cases. This would 
be an amendment of as far-reaching importance as 
any proposed and discussed herein and have the ad- 
vantage of constitutionality. Men will refuse to aid 
with their money the setting up of combinations to re- 
strain and monopolize trade, when it becomes well 
known that at the end of a Government suit they may 
find their investments beyond their reach, their only 
hope for an accounting and restitution hanging on a 
mere sense of justice and moral obligation. 

As to whether the word interpolated by the Court 
should be eliminated from the Act by amendment, is a 
question for Congress. If, however. Congress should 
wish to accomplish that result, it would require but a 
slight amendment of Sections 1 and 3. One method 
of accomplishing this result would be to qualify the 
word "restraint" in the first and third sections of the 
act by inserting, between the word "conspiracy" where 
it first occurs, and the word "in," the words "which is 
in any degree or to any extent." Both sections would 
then begin : 

"Every contract, combination in the form of trust or 
otherwise, or conspiracy, which is, in any degree or to 
any extent, in restraint of trade or commerce," etc. 

321 



WHAT CONGRESS CAN DO 

There may be a question whether or not the word 
"direct" should be also inserted between the words 
"in" and "restraint." With that insertion it would 
read : "Every contract, combination in the form of trust 
or otherwise, or conspiracy, which is in any degree or 
to any extent in direct restraint of trade or commerce." 
As the Act now stands, the word "direct" is part of 
it. That is not only the meaning but the positive ex- 
pression of many decisions. So that the question really 
resolves itself into another question: Is the insertion 
of the word "direct" necessary in order to limit the 
effect of inserting the other words, and preserving the 
limitation upon the operation of the act already estab- 
lished by the courts? 

There may be a danger that if it be not inserted ex- 
pressly the insertion of the other words would be con- 
strued to set aside the decisions reading or construing 
the word "direct" into the act. To avoid such pos- 
sibility, it would be merely the exercise of due caution 
to include in an amendatory bill not only the one, but 
also the other, amendment. It is not thought that the 
insertion of the word "direct" at the place indicated 
will have any other effect than to preserve the distinc- 
tion already judicially established, not conceding at all 
that for that purpose its insertion is essential. 

It will be noted that the courts, in limiting Federal 
cognizance to direct restraints, often speak of inci- 
dental, collateral and remote restraints; but these 
terms are used in the same sense as "indirect." The 
importance of the distinction between direct and indi- 
rect restraint seems to have been often overlooked. 
Failure to bear it in mind may account for many imprac- 
tical remedies for trust evils. 

The first emphatic and clear differentiation between 

322 



WHAT CONGRESS CAN DO 

direct and indirect restraint was in Kidd v. Pearson 
(128 U. S., 1), decided prior to the enactment of the 
Anti-trust Act. In that case, the question was as to 
whether the right of a State to enact a statute prohibit- 
ing within its Hmits the manufacture of intoxicating 
liquors, except for certain specified purposes, could be 
overthrown by the fact that the manufacturer intended 
to export the Uquors when made. It was held that the 
intent of the manufacturer did not determine the time 
when the article or product passed from the control of 
the State and belonged to commerce, and that, there- 
fore, the statute, in omitting to except from its opera- 
tion the manufacture of intoxicating liquors within the 
limits of the State for export, did not constitute an 
unauthorized interference with the right of Congress 
to regulate commerce. The reasoning of Mr. Justice 
Lamar is clear and conclusive. (See 128 U. S., pp. 
20-22.) 

That case was of controlling importance in the Knight 
case (156 U. S., 1), and the principle which it estab- 
lished has been applied in several cases arising under 
the Anti-trust Act. Some of them are: United States 
V. E. C. Knight Co., 156 U. S., 16; Hopkins v. United 
States, 171 U. S., 592-594; Anderson v. United States, 
171 U. S., 615, 616; Cincinnati, etc.. Packet Co. v. Bay, 
200 U. S., 184; Whitwell v. Continental Tobacco Co., 
125 U. S., 457-462. 

As construed in the Knight case (156 U. S., 1) and 
more recently in other cases, the statute does not reach 
what are known as "mere" monopolies, whatever their 
magnitude, and however much they indirectly interfere 
with the freedom of interstate commerce, and menace 
or destroy competition. And as the court remarked in 
the Knight case, the power to regulate commerce is a 

323 



WHAT CONGRESS CAN DO 

power independent of the power to suppress monopoly, 
"but the power may operate in repression of monopoly 
when that comes within the rules by which commerce 
is governed, or whenever the transaction is itself a 
monopoly of interstate commerce." It would be found 
in many such cases that the only corrective or regu- 
lative force for such an establishment that Congress 
could provide, would be the extension of aid or stimu- 
lating energy to new enterprises, thus checking monopo- 
listic power with competition. Any monopoly, whether 
created artificially and abnormally, or by legitimate 
accumulation, growth and absorption, destroys more or 
less competition. Those artificially created, when they 
restrain interstate commerce, can be fully dealt with 
under the Anti-trust Act; but it would be difficult to 
draw the line where the Federal Government should 
prohibit normal growth and acquisition of power by a 
corporation attaining its legal objects by legitimate 
methods. Here we have an important phase of the 
problem of dealing with big business because of its 
bigness. It might be possible to solve it, but it would 
be difficult, without a constitutional amendment. 

Several forms of independent or new legislation have 
been proposed in Senate and House bills, and one o 
two plans for relief from trust evils, real and imaginary j 
have been casually discussed, without reaching the stage 
of being embodied in bills. Among such plans, the 
creation of a commission to aid in the administration 
and enforcement of the laws seems to meet with most 
favor. Undoubtedly, a commission acting in an auxil- 
liary relation to the courts and Department of Justice 
could be made very serviceable. Several legislative 
proposals have been discussed and criticized herein 
in order that it may be seen what Congress can- 

324 



WHAT CONGRESS CAN DO 

not do. Thus it may the more clearly appear what 
Congress can do. It is not intended by anything herein 
to dictate what Congress ought to do. 

There is quite as much deserving governmental atten- 
tion in the railroad as in the industrial situation. The 
following conditions were shown to exist in the recent 
trunk line arbitration of the question of wage increases : 

Twenty men hold nine large railway systems and 
all of their subsidiary companies in uniformity of 
action and serve as means of communicating policies 
among them. 

Here are the twenty men and the number of direc- 
torates held set opposite their names: 

Number of 
Directorates, 

George F. Baker 15 

William C. Brown 13 

J. P. Morgan 12 

William Rockefeller 11 

William H. Newman 11 

Samuel Rea 9 

James Stillman 9 

W. K. Vanderbilt, Jr 9 

Oscar Murray 8 

Charles S. Mellen 8 

L. C. Ledyard 8 

William Skinner 7 

L. F. Loree 7 

John P. Green 7 

F. W. Vanderbilt 7 

N. B. Ream 6 

Joseph Wood 6 

325 



WHAT CONGRESS CAN DO 

Number of 
Directorates. 

James McCrea (now dead) 6 

Chauncey M. Depew 6 

W. K. Vanderbilt 6 

These serve as 171 directors. 

Stock ownership among the railroads has the natural 
result of grouping into systems more than two-thirds of 
the fifty-seven roads in the eastern territory. As the 
result of intercorporate ownership of stock we have in 
the eastern territory six great systems, not including the 
Reading, which latter is practically subsidiary to two of 
the other systems. These six are the New York Central, 
the New Haven, the Pennsylvania, the Baltimore and 
Ohio, the Erie, and the Chesapeake and Ohio. 

Of the fifty-seven roads the New York Central con- 
trols fourteen through majority ownership, joint owner- 
ship, or lease, not including its own line, the New York 
Central and Hudson River Railroad. Nor do these four- 
teen include its control, through the Lake Shore, of 21.7 
per cent, of the Reading Company stock, which, with 
an equal amount owned by the Baltimore and Ohio 
system, virtually gives joint control of the Reading. 

The New Haven controls, through majority owner- 
ship, joint ownership, and lease, six of the fifty-seven 
roads, not including its own line — the New York, New 
Haven and Hartford Railroad. 

The Pennsylvania controls six of the fifty-seven, not 
including its own line — the Pennsylvania Railroad. 

The Baltimore and Ohio controls four of the fifty- 
seven, not including its own lines, nor what is virtually 
joint control over the Reading system, which the, Balti- 
more and Ohio exercises with the Lake Shore and 

326 



WHAT CONGRESS CAN DO 

Michigan Southern of the New York Central system 
through the two controlHng together 43.4 per cent, of 
the stock of the Reading Company. The Reading Com- 
pany itself controls two very important railroads — the 
Philadelphia and Reading, and the Central Railroad of 
New Jersey. 

Exclusive of its own line, the Erie system controls 
one of the fifty-seven roads. 

Three others of the fifty-seven are controlled by the 
Chesapeake and Ohio, these including the Kanawha and 
Michigan, over which it exercises joint control with the 
Lake Shore and Michigan Southern through the owner- 
ship by each of 44.7 per cent, of its capital stock. 

Only seventeen of the fifty-seven rd^ds are inde- 
pendent of stock ownership by or in other roads of the 
fifty-seven; only fourteen are independent of any in- 
corporate relationship; and among the remaining com- 
panies there exists an extensive system of intercorporate 
ownership of stock. 

This intercorporate ownership of stock exists not 
only within each system but between the systems. This 
is important, because it furnishes the basis of an even 
more extensive scheme of interlocking directors among 
these roads. 

The New York Central system owns directly into the 
stock of the New Haven system, and indirectly, through 
the Lake Shore and Michigan Southern, into the stock 
of the Reading system; the Pennsylvania system owns 
directly into the stock of the New Haven and Balti- 
more and Ohio systems (also indirectly into the Balti- 
more and Ohio system through ownership by the Penn- 
sylvania Company of Baltimore and Ohio stock) ; and 
the Baltimore and Ohio owns directly into the Reading 
system. The New York Central and New Haven sys- 

1^7 



WHAT CONGRESS CAN DO 

terns jointly own a majority of the stock of the Rut- 
land ; the New York Central and Chesapeake and Ohio 
systems own jointly the Kanawha and Michigan ; the 
New York Central system controls 45 per cent, of the 
stock of the Dayton and Union, a majority of whose 
stock the Baltimore and Ohio system controls ; the New 
York Central system controls 21.7 per cent, and the 
Baltimore and Ohio system an equal proportion of the 
Reading system. 

This discussion of the intercorporate relations of the 
railroads is limited to those roads where there is owner- 
ship by another road of a clear majority of stock, al- 
though attention is called to instances where two or 
more roads or systems together own a majority of stock 
and thus exercise joint control. There are not wanting 
instances where minority holdings in reality give con- 
trol. Where this minority ownership is divided among 
two or more railroads, a practice which has become 
more or less extensive, mutual interest results in uniform- 
ity of action. 

In this way systems have been able to determine the 
policy of other systems, such as the case of the New 
York Central and the Pennsylvania in relation to the 
Reading System, and of the Pennsylvania in connec- 
tion with the Pennsylvania Company in the relation of 
the Pennsylvania system to the Baltimore and Ohio sys- 
tem. In this way an understanding or alliance has been 
brought about among all the railway systems in the 
eastern territory. 

This intercorporate relationship among the railroads 
in the eastern territory dominates and determines nearly 
every important question affecting the railroads and the 
public. Its ramifications are so intricate and bewilder- 
ing that it is not always possible to secure a clear per- 

328 



WHAT CONGRESS CAN DO 

spective of its far-reaching effects. By it railway com- 
panies having a legal individuality are welded and held 
together in highly centralized systems. 

Many railway corporations that legally are independ- 
ent, economically are dependent and are mere parts of 
a larger whole. The effects of the systems of intercor- 
porate stock ownership and interlocking directors are 
far-reaching. Not the least in importance is that of 
controlling traffic and in consequence determining the 
earnings of the roads. How significant this is can be 
seen by a study of statistical tables showing the amount 
of the total tonnage of the roads in the eastern territory 
which originates on other roads. 

The most important conclusion to be drawn from all 
of which is that a valuation of railroad properties should 
be by large systems only, rather than in detail, and that 
the jurisdiction and powers of the Commission should 
be correspondingly enlarged. 

Many measures are being proposed and urged which 
if passed would be invalidated by the courts on the 
ground that the conditions which they would change 
do not directly affect interstate commerce. In this 
category are congressional interferences with the cor- 
porate management of industrial corporations; and the 
same is probably true as to railroad corporations. The 
subject of interlocking directorates of national banks 
was purposely left out of the currency bill with a view 
to regulating it in future legislation amendatory of the 
Anti-trust law. Now such legislation might very 
properly have been included in the currency bill as a 
suitable regulation of banks chartered by the Federal 
Government, and reasonable requirements as to the per- 
sonnel of directors might also have been made a con- 
dition precedent to participation in the benefits of the 

329 



WHAT CONGRESS CAN DO 

act by State banks. But when, under the interstate 
commerce clause an act is passed purporting to control 
the stockholders of corporations chartered by the States, 
whether banking, industrial or transportation, in the 
election of directors, a very serious constitutional ob- 
jection will be interposed. If the question be asked, 
what immediate bearing has an identity of directorates 
in two or more corporations upon interstate commerce, 
it will be very difficult to answer. Of course, such a 
provision might be constitutionally enacted to apply to 
national banks in connection with trust legislation if 
clearly separable from other provisions, and referable 
to its own intents and purposes as a distinct subject of 
legislation. 

Undoubtedly, the interlocking directorate system is one 
of the strong props of "invisible government," and un- 
less means be found for forbidding it, will render well 
nigh abortive any anti-trust legislation that may be 
passed. But the condition has existed for many years, 
and its evil power has been known all the time. And 
yet no step has been taken to submit and obtain the 
adoption of a constitutional amendment conferring 
additional power upon Congress, and thus enabling it to 
deal with the subject. Congress trifled with the subject 
of an income tax for nearly twenty years after the de- 
cision of the Supreme Court in the income tax pro- 
visions of the Wilson Bill of 1894. If within a year it 
attempts legislation regulating internal corporate affairs, 
and intercorporate relations, per se, it may then be 
twenty more years before we reach the adoption of a con- 
stitutional amendment, the first step toward which should 
be taken now. 

Whatever may be the intentions of individual Senators 
and Representatives, the practice is that, collectively, 

330 



WHAT CONGRESS CAN DO 

they postpone needed action until bad tendencies have 
gone so far and bad conditions have so crystalized that 
no remedy that Congress can inaugurate will fully equal 
the necessities of the case. Truly, the ways of Repub- 
lican government, under the curse of party rule, are 
mysterious to a large majority. But they are becoming 
better understood day by day. 



331 



CHAPTER XV 

THE LOBBY AND ITS INSIDE FRIENDS, AND 
MISCELLANEOUS TOPICS. 

The money trust, as we have come to know it, like 
some others, strides along its career triumphantly. 
The government at Washington is in a desperate 
struggle with the financial district of New York City, 
designated as Wall Street, and its adjuncts through- 
out the country. Those charged with the duty of 
enacting and enforcing remedies continue saying a 
great deal, in a fragmentary, individual way, on good 
government paper and reading well in print; but col- 
lectively, and as organized governmental forces, they 
neither pass any effective new measures nor enforce 
such laws as have been already provided. 

We select for illustration of the foregoing state- 
ment with respect to the law's delays, a case under 
the Anti-trust Law. That legislation forbids such 
combinations as the records show the Standard Oil 
Company to have been, and the U. S. Steel Corpora- 
tion to be, and confers authority, not merely to arrest 
and terminate their operations, but to have prevented 
their being organized in the first instance. The mo- 
ment steps toward the organization of these trusts 
were taken in the open, as they were in both cases, 
the Government, in proper hands, could have para- 
lyzed both attempts with injunctions. Yet they were 
permitted to proceed publicly and conspicuously, fif- 
teen and fourteen years ago, respectively. No step 

332 



THE LOBBY AND ITS INSIDE FRIENDS 

was taken against the Standard Oil Trust until Oc- 
tober, 1907, nor against the Steel Trust until four 
years later. An enforcement of the act against the 
Standard Oil Company, in the suit tardily commenced 
against it, according to the letter and spirit of the act, 
would have dissolved it into its original elements and 
turned to dust a vast volume of illegal and fabricated 
stocks and bonds in the hands of the Wall Street 
and other gamblers who had obtained the securities 
on such favorable terms that they could afford to 
take desperate chances. When that case came on 
for argument in the Supreme Court these persons 
were paraded as innocent investors entitled to have 
their "vested" rights protected, as if one who openly 
and deliberately violates a law could have any kind 
of right or equity in the fruits of his crime. The 
Attorney-General of the period (Wickersham) him- 
self a legal prop of the system and one of its direct 
beneficiaries, acquiesced in that fatalistic view and 
lent his official sanction to the new and changed con- 
struction of the law which the court then gave, al- 
though it involved a complete reversal and recanta- 
tion of its solemn judgments in several prior cases. 

So simple a matter as applying for an injunction 
against a capitalistic trust is postponed from six to 
ten years, and then the litigation is nursed and the 
defendants left unmolested as to their illegal practices 
for four to five years. But an injunction can be had, 
or an indictment presented against a farmer's asso- 
ciation or a labor union, comprising thousands of 
reputable citizens, over night. The Steel Trust suit 
was begun October 26, 1911. Nobody knows what 
the exorbitantly paid special counsel employed by 
Wickersham are doing in the case. An occasional 

333 



THE LOBBY AND ITS INSIDE FRIENDS 

item appears in the newspapers about it. On Octo- 
ber 1st, 1913, two years after the complaint was filed 
and an imposing array of corporation lawyers em- 
ployed to represent the people, it was stated in the 
New York papers that another year would be con- 
sumed in the taking of evidence. Ultimately the 
public treasury will be raided to the extent of hun- 
dreds of thousands to pay special counsel and others 
in that case, as in prior cases. Thus the people 
are penalized and oppressed, every time they ask for 
redress against flagrant wrongs. If the case turns 
out no better than other recent cases, the only result 
will be merely the turning of nearly a billion and a 
half dollars in corporate issues, largely fictitious, into 
perfectly good dollars, above par; whereas, if the 
trust were dealt with according to a long line of 
earlier decisions, such issues would be no better than 
so many pieces of blank paper. Nothing here said should 
be construed as the expression of an opinion upon the 
merits of the litigation. 

But these are mere exemplifications of the in- 
equalities of treatment accorded its citizens by a 
Government conducted as ours has been for several 
decades. They are mere excrescences of a hidden 
world of political chicanery, oppression and crooked- 
ness. They are visitations from the curse of party 
rule, extending from the smallest municipality to 
State and Federal authority. What could be more 
commonplace and silly than the utterances of William 
H. Taft while President, that he was committed, as 
the "titular head" of his party, to this or that scheme 
of ruinous legislation, for instance legalizing railroad 
traffic combinations, for no better reason than that it 
was in accordance with his construction of the Re- 

334 



THE LOBBY AND ITS INSIDE FRIENDS 

publican platform. When the Taft administration 
was wound up it was found to have just two assets, 
the Payne-Aldrich Tariff Act and the Commerce Court. 
The former has been superceded by the Underwood- 
Simmons Act, and the Commerce Court is no more. 

The fate that overtook the Taft regime is a hope- 
ful sign. In that political catastrophe we have a 
promise that those sufficiently courageous to lay bare 
governmental and partisan abuses, now as heretofore, 
need not fear that their work will be in vain, or barren 
of results. 

The task now confronting the Government is not mere- 
ly that of revising tariffs and warding off panics. It 
is one of checking an absorption process which has been 
in operation for many years. The capitalization of the 
railroads is now nineteen billions of dollars, and of 
banking interests four billions of dollars, though, in 
the latter case, stock capitalization is merely a fraction 
of capital actually utilized. The seventeen billions of 
dollars of deposits are largely used by the bankers as 
their own money, loaned and reloaned. In addition to 
the high rates of interest which the railroads pay on 
their bonds, many of which are based on "trusteed" stocks 
which themselves draw dividends, the public are paying 
dividends which have constantly increased until they now 
average 7 1/5 per cent, on railroad stocks, the stocks being 
more than one-half water. The banks paid, last year, 
dividends averaging 11.66 per cent., on capitalizations 
consisting largely of the recapitalization of profits. And 
during the ten years preceding, the average had been 9 
per cent. 

Now here is a short paragraph, no semblance to which 
is ever uttered from any governmental source, in these 
days of the mad chase for disappearing dollars. If in- 

335 



THE LOBBY AND ITS INSIDE FRIENDS 

terest and dividends — the latter only another name for 
the same thing — are not reduced, all else is vain. These 
forms of exploitation and absorption have been increased 
until they dwarf all other processes vitally affecting our 
civilization. If this statement could be impressed upon 
all intelligent minds, thoroughly understood and appre- 
ciated, the balance of all herein set forth might perhaps 
have been omitted without great loss. 

Some blunt old philosopher has exclaimed, "What 
fools we mortals be." If a foreign nation threatens 
to assert by force some real or fancied right in a South 
American republic, we are ready to hazard fortunes, 
risk lives, absent ourselves from families, and endure 
indescribable hardships in defense of the Monroe Doc- 
trine, whatever that may mean. But when, after years 
of discussion and agitation, some definite real reform, 
calculated to remove financial and industrial burdens 
from ourselves and those for whose present and future 
welfare we are responsible is proposed, we are deterred 
by asserted dangers of panic and trade depression. It 
is strange and unaccountable that any sane man is un- 
willing to endure a year or two of hardship, annoy- 
ance and inconvenience with the knowledge that upon 
the readjustment at the end of that period a far better 
social, business and living condition would be reached. 

This phenomena has been remarked by others, with- 
out an attempt to explain it. The truth of the whole 
matter is that party leaders stand in the way. A man 
gets to be the head of a great party, and has learned 
that the party in power when a trade depression occurs 
is in danger of losing out at the next election. Being 
a mere partisan politician he finds reasons satisfactory 
to himself and his cohorts for believing that the ultimate 
and real calamity to be feared is a change of ad- 

33^ 



THE LOBBY AND ITS INSIDE FRIENDS 

ministration from his party to another. So, although 
convinced that the time has come to change laws 
which breed distress and oppress the great body of 
the people for the aggrandizement of a few, yet he 
and his party associates constituting the govenrment, 
enact makeshift laws which satisfy special interests 
and fool the people. 

The patriots and statesmen of 1776 adopted a declara- 
tion expressive of proper views of government, and 
the courts hold that its spirit is to be read into the 
Constitution. But political parties sprung up soon 
after the adoption of the Constitution; and so long 
as these fulfilled the proper conceptions of political 
parties, and were leaderships and followings, pos- 
sessing influence merely, and not possessing def- 
inite power, the promotion of diffusive prosperity 
and the preservation of the common good was 
the accepted and applied purpose of government. 
It was only when, as a re&ult of the Civil War, a class 
of dealers in public credits was created, that is to 
say, special interests directly involved in fiscal en- 
actments of Congress, that a partnership was formed 
between party managers and the managers of these 
special interests. Then it was, and not until then, 
that manipulation of party organizations became a 
profitable avocation and the promotion of public jus- 
tice a secondary object of government. Then busi- 
ness went into politics and politics into business. 
Statesmen, honestly, in the utmost good faith, and 
almost unconsciously, adopted a new and strange 
theory of democratic government. Party platforms 
then had less to say about those matters which con- 
cerned the people directly, and contained much pro- 
fessedly for their benefit indirectly. 

337 



THE LOBBY AND ITS INSIDE FRIENDS 

The proposal to create a tariff system to benefit those 
in particular lines of business, at the expense of others, 
which obtained final acceptance by and support of 
a majority would have shocked the minds of the 
leaders as well as the rank and file of all parties in 
the earlier decades of the republic. The same may be 
said of the view which prevailed soon after the Civil 
War that the administration of the nation's fiscal 
affairs was not exclusively a governmental function, 
and that private corporations created under general 
law might be entrusted with the issuance of substi- 
tutes for money in such varying volume as they chose, 
limited only by the amount of governmental obliga- 
tions held by them, notwithstanding that the priv- 
ilege carried to such corporate agencies the power 
to control private credits, and, by forming combina- 
tions among themselves, to contract and expand all 
credits, thus enriching the few and impoverishing the 
many. 

The test of the constitutionality of decisions by com- 
missions in rate cases, declared in the Minnesota Rate, 
and in prior, cases, will lead to most important and far- 
reaching results, and will sooner or later require action 
by Congress, the most effective form of which may be 
the submission for ratification of a constitutional 
amendment. It is somewhat difficult to criticize the 
principle enunciated by the court, owing to the fair- 
ness of the expression in which it is clothed. The court 
says: 

In determining whether that right (referring to the con- 
stitutional right to just compensation for property taken for 
public use) has been denied, each case must rest upon its 
special facts. But the general principles which are applicable 
in a case of this character have been set forth in the decisions. 

(1) The basis of calculation is the "fair value of the prop- 

338 



THE LOBBY AND ITS INSIDE FRIENDS 

erty" used for the convenience of the public. (Smyth v. Ames, 
171 U S. 361, 546.) Or as it was put in San Diego Land and 
Town Co. V. National City (174 U. S., 739, 757), 'what the 
company is entitled to demand in order that it may have just 
compensation is a fair return upon the reaosnable value of the 
property at the time it is being used for the public' (citing 
cases). 

(2) The ascertainment of the value is not controlled by ar- 
tificial rules. It is not a matter of formulas, but there must 
be a reasonable judgment having its basis in a proper consider- 
ation of all relevant facts. 

Now there is just as pointed a contrast between this 
view and that previously expressed in Covington Tp. 
etc. Co. v. Sanford and in Cutting v. Stock Yards as 
between the oil and tobacco decisions and the court's 
prior decisions under the Anti-trust Act. According to 
the earlier decisions, so long as the rate fixed by legis- 
lation or by a commission yields some return, however 
small, it is not confiscatory, and no constitutional ques- 
tion arises as an essential basis for judicial review. 
But, according to this later and changed view, the 
test is whether the rate yields a "fair return" upon the 
reasonable value of the property. Not only so, but the 
court lifts the question of valuation of property out of 
the domain of fact, and says, "there must be a reason- 
able judgment, having its basis in a proper consider- 
ation of all relevant facts," which means, accord- 
ing to the formula laid down in the Illinois Central case 
marking the line between judicial review and non-inter- 
ference, that the court will determine for itself whether 
the judgment exercised by a commission was "reason- 
able judgment." After the comission has fixed its 
valuation of property and determined a rate, it would 
be difficult to state a rate case wherein the court would 
not be justfied by this decision in reviewing the order 
and conclusions reached by the commision. 

But the court concludes its meagre discussion of the 

339 



THE LOBBY AND ITS INSIDE FRIENDS 

principle, or principles, to govern herein by harking 
back to and quoting an utterly meaningless, conflicting 
and hopelessly tangled paragraph found in the Smyth- 
Ames case, as follows : 

In order to ascertain that value, the original cost of con- 
struction, the amount expended in permanent improvements, the 
amount and market value of its bonds and stock, the present as 
compared with the original cost of construction, the probable 
earning capacity under particular rates prescribed by statute, 
and the sum required to meet operating expenses, ar call matters 
for consideration, and are to be given such weight as may be 
just and right in each case. We do not say that there may 
not be other matters to be regarded in estimating the value 
of the property. What the company is entitled to ask is a 
fair return upon the value of that which it employs for the 
public convenience. On the other hand, what the public is 
entitled to demand is that no more be exacted from it for 
the use of a public highway than the services renedred by it 
are reasonably worth. 

Now the Sixty-second Congress embodied substanti- 
ally the view of the court in that case, in the valuation 
act, but seeing that to look at the whole matter of fixing 
a rate from the standpoint of public interest according 
to the direction of the closing sentence of the above 
quotation would make the bill contradictory in terms 
and sense, omitted from the law every thing resembling 
it. As a result, the commission must hereafter explore 
an unlimited field of investigation, every phase and ele- 
ment of which will be subject to judicial review. To- 
gether, the commission and the courts carry out a rule 
thus judicially established which places the Govern- 
ment, representing the shipping public, in the surety 
business, and makes all governments. Federal, State 
and Municipal, guarantors of fixed incomes, which 
means fixed dividends. These according to the Con- 
solidated Gas case, should be six per cent., and accord- 
ing to the Minnesota Rate cases, even more. 

The fact should not be overlooked that, even if 

34<i 



THE LOBBY AND ITS INSIDE FRIENDS 

Congress amended or repealed the valuation act, or 
had never passed it, the views of the courts, followed 
by the commission, would still stand, and, inasmuch as 
they assume to be expositions of constitutional law, 
it seems that only a constitutional amendment would 
reach the necessities of the case. 

It has often been observed and occasionally noted in 
public prints that party machines of different organ- 
izations have important interests in common, often 
co-operate in the suppression of insurgency or non- 
partisan independence, and for the concealment of 
various forms of official delinquency and malfeasance. 
This partisan communism assumes more acute, in- 
sidious and evil forms at the national capital than any- 
where else. Adjacent to the very narrow battle ground 
used by them, there is a vast territeory in which the 
contending hosts of political warriors hold perpetual 
truce. Perhaps no treaties are therein signed or sealed, 
but they thoroughly understand each other. It not 
only takes in the contending forces in Congress, but 
includes the departments. 

None of the damaging investigations of the Taft ad- 
ministration were started by Democrats, but all by dis- 
satisfied Republicans. When the Republicans con- 
trolled the House they spent the contingent fund in ex- 
travagant fruitless investigations and junketing trips 
to all points of the compass, even to foreign countries, 
without check or definite opposition from the Demo- 
cratic minority ; and since the Democrats have had the 
House, the Republicans have been similarly acquies- 
cent. Hundreds of thousands of dollars are annually 
spent in spectacular investigations and junketing trips 
on a pretense that amendatory or reformatory legisla- 
tion is to follow. But the bills are cheerfully audited 

341 



THE LOBBY AND ITS INSIDE FRIENDS 

and paid, without effective protest, and dubious self-serv- 
ing or whitewashing reports are made, received and 
adopted. Then nothing more is heard of the subject, 
either in Congress or elsewhere. 

Is it any wonder then that financial administration 
in the departments is never overhauled, and that few 
grafters or defaulters are called to account? Accord- 
ing to a statement of Senator Aldrich in 1909, $300, 
000,000 a year could be saved by stopping the leaks in 
the public service. 

The Senate and House have each ten standing com- 
mittees on departmental expenditures, one for each de- 
partment. Over each department a member of the 
Cabinet presides. Thus we have, "House Committee 
on Expenditures in the State Department," and a com- 
mittee of seven or nine members for that, and a similar 
committee for each of the other departments. What 
are these committees for? Their titles ought to indi- 
cate, but they do not. The real purpose of each is to 
afford a pretext for the member of the majority party 
who gets to be the chairman to employ a relative or 
constituent as committe clerk, and perhaps another as 
stenographer. As to looking into any departmental 
accounts, or anything like a thorough investigation of 
any department, that is seldom so much as thought of. 

There was one short period of activity by such 
committees. That was during the first session of the 
Sixty-second Congress in which the Democrats had a 
majority, after a long period of Republican supremacy. 
The nine committees, with one or two exceptions, got 
to work in earnest and, although considerably ham- 
pered and embarrassed by the hostility of the heads of 
departments, notably those of the Treasury and Justice, 
and impeded more or less by archaic and peculiar 

342 



THE LOBBY AND ITS INSIDE FRIENDS 

methods of keeping accounts, succeeded in laying bare 
many damaging facts, and in implicating numerous 
grafters, delinquents and malefactors. The evidence 
gave the key to the system, and revealed volumes of 
incriminating evidence. When much work of prep- 
aration by those employed in the work had placed in 
their hands, a large amount of important and conclusive 
evidence, the enthusiasm of the committees suddenly 
cooled. Late in July of the session ending about the 
the middle of August 1911, at the request of Speaker 
Clark, who was endeavoring in good faith, to have the 
proper investigations made, the nine chairmen met at 
his office. Although it was there agreed without dissent 
that the work of collecting evidence to be used at 
the regular session in December, should proceed, 
it was evident from what was said by the respective 
chairmen that some undisclosed influence was blocking 
the way to placing the truth before the House and 
public concerning the uses of public moneys, in the 
departments. Nevertheless, the investigators contin- 
ued thir work until the first of October when the work 
was suddenly ordered to be stopped. Near the ad- 
journment of the special session, however, a large 
amount of most damaging evidence was brought before 
the Committee on Expenditures in the post Office Depart- 
ment. The committee refused to allow it to be intro- 
duced, or even to be left in its possession, although the 
evidence had been brought there, by its express orders. 
The evidence, consisting largely of claims and vouch- 
ers, established, among other things, several kinds of 
most flagrant misappropriation ; for instance, per diem 
allowances for subsistence and travelling expenses in 
attendance by assistants Postmaster-General and bu- 
reau heads at purely political assemblages, desig- 

343 



THE LOBBY AND ITS INSIDE FRIENDS 

nated as Postmasters^ and Carriers' Conventions, held 
to promote particular candidacies for the presidency. 
It was very evident that some sinister influence was 
powerfully and successfully at work in that Democratic 
Committee. 

The faithful worker in the party rank is a mere cipher, 
and is estimated as such by those elected to office, for in- 
stance to the office of Congressman. He imagines that 
his party exponent at Washington is valiantly fighting for 
those "lime honored" party principles so eloquently dis- 
cussed in the campaign. If, however, he were permitted 
to look behind the scenes he could see that the conflicts 
waged on the floor of the House are merely stage-set and 
spectacular and that with reference to all the affairs that 
most concern him, as a citizen and taxpayer, some repre- 
sent unfriendly special interests, without reference to 
party alignment; also, that in the silence which precedes 
and follows the • wordy war of debate, there is a vast 
amount of trading, swapping, compromising, log rolling, 
connivance, "division and silence," without reference to 
party names, platforms or principles. At each session 
hundreds of private bills are worked through without in- 
vestigation or discussion and with but little or no atten- 
tion to their true characters and at a cost to the people of 
millions of dollars. 

The National Congress, as it has been controlled for 
half a century, is a graveyard for the most important pro- 
gressive hopes. No matter how many new members enter 
Congress at a given time, they find themselves "up 
against" a huge and complicated game, at which they are 
novices, a game played with marked cards and loaded 
dice, in the hands of experienced gamesters, firmly fixed 
in the seats of power and influence. To get anything at 
all for their own States or districts, they are compelled to 

344 



THE LOBBY AND ITS INSIDE FRIENDS 

acquiesce in the rules of the game, to fall in line, smother 
their best impulses, subdue pride, ambition and resent- 
ment, and submit in silence, or with only mild protest. 

The exceedingly reprehensible practice of executive 
or secret committee work has been, thus far, only inci- 
dentally mentioned. The Progressive and Independent 
Republicans have recently pointed out its evils, their 
criticisms having reference, however, to the tariff and cur- 
rency bills. Where measures unquestionably embody a 
party poHcy on subjects like these, where the ultimate 
action must be taken in the open, and it is obvious, as it 
was in these instances, that without organized party action 
there is no possibility of any legislation whatever, cau- 
cuses, both of the majority memberships of committees, 
and of the membership of the House, is justified. But 
the evil practice prevails in the committees on all im- 
portant measures, whether involving any party policy or 
not. And, immediately, the important question arises 
concerning the significance and effect of the practice. 
How is it possible to know what inducements and argu- 
ments have been used on the member to cause him to help 
support or kill a bill, who after voting in secret, under 
a gentlemen's agreement, refuses to disclose how he 
voted, or does not state the truth about it. Most of us 
understand, at any rate it is the fact, that the fate of nine- 
ty-nine in every hundred bills introduced is settled by 
action taken in committee. 

The situation requires more courage, wisdom and in- 
difference to personal consequences to restore a measure 
of equity and safety than has been exhibited by any de- 
partment of visible government in three-quarters of a 
century. 

Those clothed with temporary official authority could 
accomplish nothing by threats to harm organized society. 

345 



THE LOBBY AND ITS INSIDE FRIENDS 

Their threats would only excite contempt and ridicule. 
This, while pointing a difference between our system and 
autocracies, is all well known and commonplace. But 
our enemies lie constantly concealed, ever working insid- 
iously, to the common loss, undermining property and 
personal rights, furnish a pretext for, if not justifying, 
unreasoning discontent and disintegrating the structure 
of democratic government. The shams and frauds of 
political and official life cannot be described in detail 
because of their endless number and variety, even if 
readers could be found for so lengthy a recital. By a 
communication over a telephone, or at a brief social and 
apparently innocent conference between political bosses, 
or between them and their servants in legislative, judicial 
or executive station, the people of a whole State may be 
robbed and humiliated. Likewise, an act of chicanery 
and infamous double dealing between the head of a 
department at Washington, or between the chairman of 
an important congressional committee and the heads of 
vast corporations may injure the people permanently, 
grievously and to a magnitude in comparison with which 
open treason would be trivial. And the only preventive 
for such betrayals and disasters is merciless, undeviating 
publicity, the necessity for which has been often shown 
impressively or convincingly. 

The secrecy with which acts of spoliation are per- 
petrated and combinations of obstruction are formed, 
itself constitutes the all but insuperable difficulty of lay- 
ing them before the public or the tribunals which could 
properly deal with them. But the statement is fully 
justified that when great measures come before Con- 
gress, such as acts to regulate transportation or to 
curb industrial monopoly, or to restore to the Govern- 
ment its proper functions under its constitutional power 

346 



THE LOBBY AND ITS INSIDE FRIENDS 

over coinage and currency, what is said and done in the 
open, and is duly printed in the Hearings of the com- 
mittees and Record, are of trivial significance in com- 
parison with what occurs secretly between representa- 
tives of the special interests to be affected and Senators 
who have given up private practice to begin practicing 
law in the Senate. This statement of course must be 
limited in its application to a few instances. 

Vast sums were expended from the public treasury 
by a Committee of Senators and by a Committee of 
Representatives, and volumes of testimony taken in the 
Mulhall Lobby Investigations. What was ascertained, 
minutely printed and detailed from day to day in the 
pubHc press, was mere trash, as compared to the truth 
underlying the actions of many members of the two 
houses on measures of national importance. 

But these are mere general charges, and it must be 
admitted that under the present rules of procedure, and 
because of the retort courteous and everlasting disclaimer 
of sinister imputation, now prevalent in both houses, 
nothing better than groping in the dark for adequate 
reasons is left to those who are constantly disappointed 
and unable to account for the uniform failure of refor- 
matory measures. In its proper preceding connection 
are references to the operations of lobbyists at Wash- 
ington, and especially of the railroad lobby. Of course 
lobbying is a word of very wide import. Many earnest 
men, devoid of any direct personal interest, use personal 
effort and bring to bear all their powers of persuasion 
for good causes privately and before committees. These 
might by liberal construction come within the class 
known as lobbyists. Such persons are persona non grata 
with the hired lobbyist working for a private interest, 

347 



THE LOBBY AND ITS INSIDE FRIENDS 

and with any Senators or Congressmen inclined to deal 
with the latter kind. 

But there is not only a lobby for the railroads but 
for the banking and many other special interests. Not 
only so, but there is a lobby in such a general sense that 
much space would be required to describe it, and vast 
volumes would be required to describe its ramifications 
and operations even if any writer would have the requi- 
site ability, knowledge and time for it. Big business re- 
quires for its greatest influence at the capital stage- 
settings, equipages, magnitudes and guises in keeping 
with the financial importance of what it seeks to ac- 
complish, whether in the form of promotion or repres- 
sion. We cannot attribute anything criminal, or dis- 
honest, or even reprehensible, to those who either pri- 
vately or publicly, before committees, or elsewhere, seek 
to influence legislation, either affirmatively or negatively, 
because it is and should remain a free country, with 
all the legitimate avenues of approach to the sources 
of legislation wide open. Access should be easy even to 
paid representatives of public or private interest. The 
real need is for ceaseless investigation and limitless pub- 
licity as to the real relations, interests and ^lotives of 
those falling within the comprehensive term, lobbyist. 

It often occurs that those who appear before commit- 
tees in the most favorable guise, as regards humane im- 
pulses and disinterestedness, are in reality representa- 
tives of selfish and sordid interests one or two stages 
removed and carefully concealed. Such lobbyists are 
not merely "insidious." They are deliberately deceptive. 

In discussions of the currency bill, it was clearly 
pointed out by men well informed on the subject, that 
the resources of the country and earnings of its peo- 
ple could not stand the drain and absorption of bank 

348 



THE LOBBY AND ITS INSIDE FRIENDS 

earnings. But banking methods for rapid wealth ac- 
cumulation by established and tolerated processes when 
compared to those of the principal railroads, are as an 
occasional bandit raid to an invading hostile army of regi- 
ments, brigades and corp divisions. The public are 
taxed to keep down the interest on long-term bonds, and 
to maintain the sinking funds for their gradual and 
final liquidation. Thus it is the people's credit and not 
that of the builders that finances construction in the 
first instance. Then as the management extends its 
operations and improves its facilities, the expansion oc- 
curs and improvements are made upon new capital ob- 
tained in the same way and likewise based on the newly 
acquired as well as the original patrons. All the time, 
roadway and equipment are repaired and replaced out 
of the gross earnings before the setting apart of any 
fund designated as surplus. 

There is a power in this nation, a silent but irresistible 
economic force, directing all governmental agencies and 
standing behind those in control of the leading political 
parties. The interests of that economic force are, in 
all general party activities and operations of the Gov- 
ernment, considered and dealt with as of paramount 
importance. For this reason, the forces that are really 
antagonistic to each other are organized capital, on the 
one hand, and the general financial interests of the peo- 
ple on the other, while the political parties are only 
apparently and theatrically opposed to each other. The 
party views are sham and trivial, in comparison with 
that between the people and their oppressors, the latter 
dictating the policies of both parties with such cunning 
and such regard to their own selfish purposes as to 
divide the people upon non-essentials and academics 
which never can be permanently settled. In short, the 

349 



THE LOBBY AND ITS INSIDE FRIENDS 

truth is submerged and concealed under partisan strife. 
Thus, by deceptions, the poHticians wilfully or un- 
wittingly become the tools or agencies for deluding the 
people, or, at any rate, that numerous class among the 
people without the time or opportunities for such study 
and investigation as would disclose the true line of 
duty and interest. 

The idea conveyed by the ancient saying, "Truth lies 
hidden at the bottom of the well," may be expressed 
in another way. Truth is hidden by proximity. No 
true account has ever been given by one person of a 
great battle, because one near enough to witness any 
part of it was too far from other parts to obtain any first 
knowledge of what was there occurring. To obtain 
full and accurate knowledge of all the movements, ma- 
noeuvres and phenomena he would have to be far 
above, and equipped for maintaining his relative posi- 
tion. Even in that case, he would require several extra 
eyes, an abnormal memory and extraordinary descrip- 
tive powers. So, in the midst of present-day agitations 
for what is claimed to be progressive and reformatory 
legislation, all patriots and philanthropists feel themselves 
beset with difficulties arising from doubts concerning the 
motives and incentives of others. Such doubts have not 
deterred the writer of the foregoing pages from advo- 
cating what he earnestly believed to be genuine reforms, 
but they affect his faith in the outcome. The struggle 
for any progressive measure, however moderate, is one 
against intrenched and heavily armed opposition. One 
would as well be exhorting sinners in the darkness and 
loneliness of a dungeon as traveling alone and armed 
merely with power to speak truly against the hosts of 
reaction and selfishness. 

Optimism is the popular fad, while fault-finding with 

350 



THE LOBBY AND ITS INSIDE FRIENDS 

existing tendencies usually makes one a target for cen- 
sure and abuse, if prominent, and of scorn and pity, if 
able only to cause annoyance, not amounting to dis- 
turbance. 

There are several great popular misconceptions and 
delusions at work in our political and economic life, 
some of which have been working toward our undoing 
for several decades; others are of more recent origin. 
It has been the aim of the author to point them out 
and suggest remedies. Whether the truth of what he 
has here written be admitted and results in new kinds 
and forms of procedure at an early or later date cannot 
of course be foretold, but that that will be the ultimate 
result, he does not doubt. Robert G. Ingersoll once said 
that there is nothing in the universe half so important 
as a fact. But next to a fact in importance, by com- 
mon consent, we place an idea, especially a new idea. 
An idea has this advantage, however, over a fact. The 
latter is without inherent or independent force; it is 
passive even in use. The former travels by its own 
propulsive force to the ends of the earth. The dis- 
coverer of an idea only has to make his discovery known. 
Then men, may be of stronger minds than that of the 
discoverer, will take it up, give it new power through 
advocacy and publicity, even unto its final triumph. 



351 



APPENDIX A. 
FORM FOR MODEL PRIMARY ELECTION LAW. 

The people of the State of ■, in Senate and 

Assembly do enact as follows : 

Section I. All delegates to conventions of political parties 
for the purpose of making nominations of candidates for public 
office within this State shall be elected at elections to be known 
and designated as primary elections, and conducted at the times 
and places, and under the regulations in this act hereinafter 
specified, and not otherwise. 

Section 11. A convention to nominate candidates for public 
office to be voted for by electors of the entire State will be here- 
inafter in this act designated as a State convention, and a 
primary election for the election of delegates to such conven- 
tion will be hereinafter in this act designated as a State primary. 
Conventions to nominate candidates for representatives in Con- 
gress, or for senators and assemblymen, or judges of the courts, 
from districts including more than one county, and less than the 
entire State, will be hereinafter in this act designated as district 
conventions, and a primary election to elect delegates to such 
convention will be hereinafter in this act designated as a district 
primary. Conventions to nominate candidates for county officers, 
judges of the courts, justices of the peace and members of the 
senate and assembly and all township officers in territory included 
entirely in one county, and all borough and city officers in cities 
and boroughs including territory in more than one county will 
be hereinafter in this act designated as local conventions, and 
primary elections to elect delgates to such conventions will be 
hereinafter in this act designated as local primaries. A conven- 
tion to nominate candidates for office in cities, towns and villages 
lying entirely in one coutny will be hereinafter in this act desig- 
nated as a city convention and a primary election to elect delgates 
to such a convention will be hereinafter designated as a city 
primary. 

Section III, Primary elections shall be held in this State 
under the provisions of this act on Tuesday following the 
second Monday in the month of August in each and every year. 
Said primary election shall be held for the election of delegates 
to all conventions for the purpose of making nominations for 
officers to be voted for at the next ensuing general election. 

Section IV. In the year nineteen hundred and sixteen, and 



APPENDICES 



every four years thereafter, in addition to the primary election 
provided for in Section III, a primary election shall be held 
in this State on the fourth Tuesday in the month of April for 
the purpose of choosing delegates to State conventions to select 
delegates to national conventions, and such primary election 
shall be conducted in accordance with the provisions of this 
act governing other State primary elections. 

Section V. Elections herein provided for and known and 
designated as primary elections shall be conducted, managed and 
controlled as to selection of precinct officers, their powers, qual- 
ifications, duties and compensation, publication of notices, qual- 
ifications and privileges of voters, registration, challenging of 
voters, voting booths, printing and use of the ballots, cards of 
instruction, ascertainment of results, time for opening and closing 
of the polls, furnishing the lists, books, etc., of registration 
for use at the polls, and all other details, by and under the 
supervisions of the same public officers and boards, and in 
the same manner, and subject to the same regulations as are 
elections for State, district, county, city, borough, town, village 
and other local officers as far as applicable, except as other- 
wise provided for in this act. 

Section VI. Sample ballots shall not be printed or distributed, 
and there shall be but one ballot box at each polling place. 
There shall be printed for each primary election precinct only 
as many of the official ballots provided for in this act as 
there are names appearing on the register, of persons entitled 
to vote thereat. The compensation which shall be provided and 
paid to each primary precinct election officer shall not exceed 
five dollars per diem, and it shall be the duty of every person 
selected and appointed to act as such primary precinct election 
officer at a primary election to perform the services required 
of him in such capacity. The primary precinct election officers 
shall be three inspectors, one poll clerk, and one ballot clerk, 
for each primary election district. They shall possess the 
qualifications of election officers at general elections. The same 
person shall not, without his consent, be compelled to serve 
as such primary precinct election officer more than once in 
every two years. 

Section VII. All primaries, held under the provisions of this 
act, shall be a public charge, and shall be under the control 
of the same officers and supervising and canvassing boards as 
general elections. All provisions of the laws of this State gov- 
erning expenses, disbursements and expenditures for general 
elections shall be and are hereby made to apply to elections 
held under the provisions of this act, and expenses incurred 
by the Secretary of State under this act shall be as a State charge, 
and payable out of the general fund. The boards of supervisors 
of counties and city councils or boards of trustees, or other gov- 
erning bodies of cities, towns and villages shall appropriate from 
the general funds of the county, city, town or village, as the 
case may be, sufficient sums of money to pay the necessary 

353 



APPENDICES 



expenses of conducting the primary elections herein specified, 
and it shall be the duty of the proper disbursing officers to 
pay such expenses when properly ordered, where the same 
are either a county, city, town or village charge respectively. 
The board of election commissioners of any city containing more 
than one county, and the boards of supervisors of counties acting 
as canvassing boards, and the city councils or boards of trus- 
tees of cities, towns and villages as to all elections for delegates 
to conventions held under their control, as the case may be, 
under the provisions of this act, shall forthwith, after any 
such election, canvass the returns and shall, within five days, 
issue to the persons elected as delegates to the respective party 
conventions certificates stating such fact, and thereupon such 
persons shall constitute the delegates of the party, and shall 
be entitled to sit and act in the respective party conventions 
to which they are elected. 

Section VIII. All political parties which, at the last election 
prior to any primary election next to be held and herein provided 
for, polled at least three per cent, of the entire vote of the 
state, county, district, city, town, borough, village, or other 
political division for which a primary election is to be held, 
or which, in the case of any county, borough, city, town or 
village or district wherein no general selection shall have been 
held after its organization, theretofore had polled at least 
three per cent, of the votes cast in the precincts or territory 
composing such county, borough, town, village, city or district 
shall be entitled to a designation and place upon the official 
ballot to be used in all elections for delegates under this act, 
upon complying with the provisions of this section, and all 
other political organizations which shall file with the proper 
officer or board the petition required in such behalf by the 
provisions of this section shall be likewise entitled to participate 
in such primary election. Where a state or district convention 
is to be held, the governing committee of any political party 
desiring to nominate candidates to be voted for in the State 
or in any district, and desiring to participate in primaries 
herein provided for, shall, at least forty days prior to the date 
of the State or district primary, file with the Secretary of State 
a petition, authenticated by the chairman or secretary, or other 
governing officers of the state or district committee of such 
party, setting forth the name of such party, stating that such 
wriing is authenticated by the proper officers of the party com- 
mittee, that it is the intention of such party to hold a State 
or district convention or conventions, for the purpose of making 
a nomination or nominations of candidates for public office to 
be voted for at the next ensuing general election, or at any 
special election within the same territory which may be properly 
called, for the purpose of filling a vacancy in any public office 
for which such convention is entitled to make nominations, and 
requesting that a place be given to it upon the official primary 
election ballot. The petitions filed by congressional district 

354 



APPENDICES 



committees, where there are such committees, shall state whether 
the delegates elected to a State convention shall nominate candi- 
dates for congress within such congressional district, or separate 
delegates shall be elected for that purpose, and petitions filed 
by committees for other districts including territory in more 
than one county shall likewise state whether the delegates to 
the state Convention residing within such district shall nom- 
inate the candidates for public office in such districts, or whether 
separate delegates shall be elected therein for that purpose. And 
unless there shall be district petitions and unless such district 
petitions, if filled, shall provide for such separate delegates in 
the cases aforesaid, such district candidates shall be nominated 
by the delegates to the State convention who come from and 
reside within the respective districts, but this provision shall 
not be construed to require district conventions to be held at the 
time or place of holding the State convention. All petitions 
must further state the number of delegates who will compose the 
convention, and specify the basis of the apportionment upon 
which they are to be elected, and may either make such appor- 
tionment detail, or may leave the apportionment in detail to the 
proper officers or boards with which the petitions are filed, but 
all apportionment made in accordance with the provisions of this 
act, whether found in petitions or made by officers or boards, 
must be made on the same basis for each subdivision and must 
not be to units of territory comprised in different assembly dis- 
tricts, nor such as to allow voters in different counties to vote 
for the same delegate or delegates, nor in cases of cities, towns, 
or villages divided into wards for voting purposes shall any 
unit of apportionment embrace territory in more than one ward. 
Such petitions must be duly verified as to the truth of the matters 
therein contained by the chairman or secretary, or a governing 
officer of such party, before an officer authorized to 
administer an oath in this State. If a petition be by a political 
organization which has not previously polled three per cent, of 
the vote as herinbefore mentioned and specified in this section, 
then, in that event, such petition must be signed by registered 
electors residing within the State, district or other political 
division, for which delegates are to be elected equal in number 
to at least three per cent, of the entire vote cast at the last 
preceding election in the State, district or other political division, 
and must be verified as required by the laws of this State govern- 
ing nominations of candidates for public office by petition. Such 
signatures need not all be appended to one paper, but shall have 
added thereto the address as required by said laws. Such peti- 
tion may also contain the names of persons designated to con- 
stitute a committe of said organization and of the officers of such 
committee for the territory to which said petition relates, with 
the address of such officers. Electors may file such petitions and 
thereby organize existing parties in congressional and other 
districts and participate in primaries and hold conventions under 
this section. Where local conventions are to be held such peti- 

355 



APPENDICES 



tions must be authenticated in the same manner as above pro- 
vided for State or district conventions by the governing officers 
or committee of the party, or by signers to a verified petition 
as hereinbefore specified, and must set forth the same matters 
as hereinbefore required for participation in a State or dis- 
trict primary election. Such last named petition must further 
specify whether or not the same delegates are to serve in the 
local convention, and also in subdivisions of such local conven- 
tions for the purpose of nominating State senators, members of 
the assembly, judges of the court, justices of the peace, super- 
visors or other local officers, or whether different sets of delegates 
are to be elected to such local conventions, and must specify the 
basis of apportionment of delegates, whether by assembly dis- 
tricts, or by wards, or by primary election precincts, or combi- 
nations thereof not to exceed an assembly district for each 
proposed convention; and the basis of apportionment shall be 
uniform as hereinbefore provided in the cases of State and 
district conventions ; provided, however, that only such delegates 
as have been elected from any political subdivision shall make 
the nomination of candidates to be voted for therein. If the 
apportionment in detail is not contained in any petition filed, 
then such apportionment shall be made by the officer or board 
with whom the petition is filed before the publication provided 
for in this act. Such last named petition for participation in 
a local primary election must be filed with the proper officer or 
board at least thirty days before the date of such primary 
election. Where a city primary is to be held, such petition 
must set forth the same facts required to be set forth in a 
petition for participation in a local primary election, must be 
governed by the same rules, and must be exectued by the 
governing officers or committee of the party for such city, bor- 
ough, town or village and in like manner and time filed with 
the officer or board having control of elections within such 
city, borough, town or village, or by signers to a verified petition 
as hereinbefore specified. Such last named petition for par- 
ticipation in a city primary must specify in th ebasis of appor- 
tionment of delegates, whether by assembly districts, or by 
wards, or by primary election precincts, or by combinations 
thereof, not to exceed an assembly district or ward. 

Section X. Upon the expiration of the time allowed by law 
for the filing of the petitions with the Secretary of State, as 
herein provided, he must within ten days transmit copies of 
such petitions to the proper officers or boards having control 
of elections of the counties or other political divisions in which 
such primaries are to be held under the provisions of this act. 
And the Secretary of State shall forthwith in writing notify 
the governing body of each political party which has theretofore 
filed with him such petition, of the transmission of such copies 
of petitions ; provided, that when the petition filed is by a 
political party or organization which has not previously polled 
three per cent, of the votes as in this act specified, such notice 

356 



APPENDICES 



may be given to any person designated in said petition as 
the person to whom such notice may be sent, or to any officer 
or any committee whose name and address is contained in 
said petition. Within ten days after receipt of such notice, 
where its petition thertofore filed with the Secretary of State 
does not make the apportionment of delegates in detail, the 
proper officers or boards having control of elections in the re- 
spective political subdivisions shall make the apportionment in 
detail of delegates therein. At least fifteen days before the 
holding of any primary, under the privisions of this act, the 
proper officer or board having control of elections of each 
county, or in any city containing more than one county, shall 
shall publish a notice thereof for three successive publications in 
at least one daily newspaper published in such county, or city 
as the case may be. If there be no daily newspaper published 
in such county or city, then such publication shall be in some 
weekly newspaper for at least two successive publications, and 
if there be neither daily nor weekly newspapers in any county or 
such city respectively, then for like peridos in some daily or 
weekly newspaper in an adjoining county or city. Such notice 
shall contain the names of the political parties which are entitled 
to nominate candidates for public office by a convention, and 
which are entitled to participate in the primary election next 
ensuing, the offices for which nominations may be made, a des- 
ignation of precincts, the location of polling places,the names of 
primary election officers, together with the number of delegates 
which each party is entiled to elect, and the apportionment 
thereof, from each assembly district, ward, township or parts of 
wards or townships, or other territorial divisions, and the num- 
ber to be elected at each precinct as apportionments are made 
and set forth in the various petitions of the different polit- 
ical parties as in this act provided, or as made by the officers 
or boards as above provided when not made by the proper peti- 
tion. 

Section XI. Prior to each primary election held under the 
provisions of this act, the proper officers or boards shall ap- 
point the proper number of primary election officers for each 
primary election district which shall be then, or shall have been 
theretofore, established by them. The appointment of primary 
election officers, apportionment of delegates, and establishment 
of primary election precincts shall be made sufficiently previous 
in point of time to permit the publications herein directed to 
be made. The proper officers or boards may combine not more 
than three contiguous general election precincts into one primary 
election precinct; provided, that no primary election precinct 
shall embrace territory not in the same assembly or aldermanic 
district; and provided further, that where any city, town, or 
village is by law or charter divided into wards, no primary 
election precinct in such city, town or village shall embrace 
territory not included in the same ward, and in the same 
aldermanic and in the same assembly district. 

357 



APPENDICES 



Section XII. As many official ballots for the primary elec- 
tion shall be printed and provided for each election district 
as there are voters entitled to participate therein. The only 
matter to be printed on any ballot shall consist of appropriate 
headings and directions for voting the ballot, the designations of 
the various conventions to which delegates are to be elected, 
and the number of delegates which the parties operating co- 
extensively within each division thereof is entitled to elect to 
each convention at the particular district where said ballot is 
to be used : all of which shall be concisely and briefly set forth. 
The voter may write the names and his choice for delegates 
with pen or pencil, or he may attach on the proper place on the 
ballot with any adhesive substance a slip of white paper con- 
taining the names of his choice ; provided, that on such slip 
there may be printed a designation of the convention to which the 
delegates are to be elected. And whether delegates are to be 
elected by the voters party to one or to more than one convention 
at the same primary election, he may make his slip or ticket com- 
plete and inclusive of all matter below the column heading, and 
the fact that such slip or ticket when placed on the ballot covers 
up any or all printed matter below the column heading on the 
official ballot shall in no wise invalidate the ballot, or ticket 
Each voter may vote for as many names for delegates as are 
entitled to be elected to his respective party convention or con- 
ventions, from the primary district at which he votes, under and 
by virtue of the apportionment theretofore made and the direc- 
tions in pursuance therewith appearing on said ballot. Any ballot 
upon which any names appear for delegates to conventions of 
more than one party shall be disregarded. Nor shall any ballot 
contain names of any delegates to more than one State conven- 
tion, or more than one district convention, or more than one coun- 
ty convention, or moer than one local convention, or more than 
one city, borough, town or village convention of the same political 
party, nor shall any of the printed matter placed on any ballot 
by legal authority be changed or erased. Any ballot not con- 
forming hereto shall be disregarded. In case of a tie vote 
between candidates for delegates, such fact must be reported and 
certified to such candidates and to the secretary of the proper 
party committee, if such party shall have polled at least three 
per cent, of the entire vote as in this act mentioned, and if such 
party shall not have polled said three per cent, then to the person 
designated in the petition filed by such party ; and each delegate 
so tied shall receive a certificate entitling him to, and shall 
entitle him to a half vote, and in the absence from the convention 
of the person with whom he was tied, to a whole vote. If three 
are tied each shall be entitled to the certificate authorizing him 
to a one-third vote, and in the absence from the convention of 
one where three are so tied, the other two shall be entitled to a 
half vote each. The proper and uniform application of this 
rule shall be made by election officers, boards and conventions, 
no matter how many candidates for delegates are tied. To 

358 



APPENDICES 



determine with what particular other candidate or candidates 
a candidate is tied, reference may be made to the proper number, 
or numbers, appearing on the ballot or slip or tickets herein- 
before provided for. Each person elected as a delegate shall in 
addition to serving in the regular conventions of his party be 
entitled to serve as such at any convention of such party prop- 
erly called to nominate all candidates to be voted for at special 
elections, held to fill vacancies occurring prior to the holding 
of the primary election next following that at which he was 
elected. Nothing herein shall be held to prevent the election 
of the same person to more than one convention of the same party 
where one of the conventions is held for a political division in- 
cluding the other, separate nominating conventions being legally 
held in each. 

The official ballots for primary elections shall contain nothing 
except the name of the county, city, borough, town or village 
in which to be used, number of the ballot, description of the 
voting place, column headings, descriptions of conventions, and 
numbered lines ; for instance : 



OFFICIAL BALLOT, PRIMARY ELECTION, 1914 

Assembly District (or Ward), County (City, town or village) 

No Of 

Election District No Ballot No 

Democratic Column. Republican Progressive 

State Convention, Column Column 

Vote for three delegates: Just the same Just the same 

1 as Democraticas for the Dem- 

2 column except asocratic column 

3 to number ofexcept as to 

Municipal convention. delegates. number of dele- 

Vote for ten delegates : gates. 

1 

2 , 

3 

(and so on to 10). 
County Convention. 

1 « 

Vote for 15 delegates: 

2 

3 

(and so on to 15). 

Same for congressional sena- 
torial etc., conventions. 

Section XIII. No convention shall be illegal because of a 
failure of any precinct or political division to elect delegates 
thereto where a majority of the delegates entitled to be elected 
to the particular convention have in fact been legally elected, 

359 



APPENDICES 



and in such case as well as where a larger proportion have been 
elected, a majority of delegates elected shall constitute a quorum; 
but no convention shall be recognized as in law entiled to make 
nominations unless the delegates participating therein were 
elected under and by virtue of the provisions of this act. 

Section XIV. Immediately upon making out the credentials of 
delegates elected under this act the proper officer in control of 
elections, or clerk of the proper canvassing board shall mail or 
deliver personally to each delegate elected a certificate of his 
election and to the secretary of each political party or organiza- 
tion which participated in the primary a complete list of all 
delegates to whom credentials shall have been given as herein 
provided, and said officer or clerk must in proper book to be 
kept by him, record the names of all delegates elected, with 
the vote received by each, specifying those to whom credentials 
have been given, stating when and where such credentials were 
issued and delivered or mailed, and if any delegate entitled to 
credentials shall not have received his credentials or shall have 
lost the same, said clerk must, upon request, issue a new cre- 
dential to such delegate which must be stamped "duplicate." 

Section XV. If any delegate elected under the provisions of 
this act shall die before the convention to which he was elected 
convenes, or from any cause shall be unable to attend the same, 
then the other delegates thereto who were voted for in the same 
territory as such delegate, or if there is no other delegate re- 
maining from said territory, then the other delegates thereto who 
were voted for in the same assembly district shall have power 
to determine by a majority vote which, of said delegates may cast 
an additional vote in such convention, and thereupon the dele- 
gates so named may cast such additional vote. 

Section XVI. Any person appointed or chosen to act as a 
primary election officer who shall, except for good cause fail, 
or refuse to act as such, without having been excused there- 
from, shall be deemed guilty of a misdemeanor and liable in 
addition to a civil suit in the sum of twenty-five dollars, in 
liquidated damages, to be brought by the district attorney, in the 

name of the people of the State of , which sum, 

when collected, together with costs, shall be paid into the 
treasury of the proper county or city, borough, town or village. 

Section XVII. When there shall not be in any county or 
city any board of election commissioners as such, then all duties 
enjoined and powers conferred herein upon such board of elec- 
tion commissioners, shall be enjoined and conferred upon and 
performed by the officers or boards having control of general 
eelctions ; and if there be no such officers or boards, then by 
the common council or board of trustees of a city, borough, 
town or village, or governing board or tribunal of a county, 
in each case respectively. 

Section XVIII. The ballots for the respective political parties 
cast at the primary election, must, after being counted, be sealed 
in separate envelopes in the manner provided for sealing and 

360 



APPENDICES 



certifying ballots at general elections, and each such package 
must have written or printed thereon plainly the designations 
of the political party and the number of the primary precinct 
where the same were cast. Such ballots must not be destroyed 
until after the adjournment of the political convention or con- 
ventions for which delegates were elected by such ballots. 

Section XIX. All acts, and parts of acts inconsistent with 
the provisions of this act, are hereby repealed. Where pro- 
vision is not made in this act for any exigency or condition 
that may arise pertaining in any way to a primary election, and 
no provisions governing such exigency or condition is found in 
the election laws of the State, then a proper rule, not in conflict 
with law, may be made, promulgated and enforced by the proper 
officer or board having control of elections in the particular 
political division. 

Section XX. This act shall take effect immediately. 

APPENDIX B. 

A BILL 

To amend the interstate-commerce law. 

Be it enacted by the Senate and House of Representatives of 
the United States of America in Congress assembled, That sec- 
tion eleven of the Act to regulate commerce approved February 
fourth, eighteen hundred and eighty-seven, is hereby amended to 
read as follows : 

"Sec. 11. That a commission is hereby created and established 
to be known as the Interstate Commerce Commission, which 
shall be composed of one chief commissioner and fourteen com- 
missioners to be appointed by the President, by and with the 
advice of the Senate: Provided, That any commissioners hold- 
ing offices as such at the taking effect of this Act shall continue 
in office until the expiration of their respective terms, and for all 
the purposes of this Act such incumbents shall participate in the 
organization of the commission hereby created with the same 
rights as if appointed and confirmed by the Senate, as is herein 
provided for new appointees. Said commission shall be consti- 
tuted by the appointment of a chief commissioner to hold office 
for the term of four years and to receive a salary of eleven 
thousand dollars annually, and seven additional commissioners 
to hold office four years and receive salaries of ten thousand 
dollars each annually; and their successors in office shall have 
the same tenures of office and receive the same salaries, except 
when appointed to fill a vacancy caused by death, resignation, 
removal, or other cause, in which case the appointee shall only 
hold office until the expiration of the term for which his prede- 
cessor was appointed. The commissioners now in office shall 
hold office until the expiration of their respective terms, except 
in cases of death, resignation, or removal, in which case their 
successors shall hold office only until the expiration of the terms 

361 



APPENDICES 



of their respective predecessors : Provided, however, That no 
appointment shall hereafter be made, whether to fill a vacancy 
or otherwise, for a longer period than four years. Any commis- 
sioner may be impeached or removed by the Senate for ineffi- 
ciency, neglect of duty, or official malfeasance, upon articles of 
impeachment preferred and prosecuted as in other cases. Count- 
ing the chief commissioner to be appointed as herein provided 
as one, not more than four of such new appointees shall be 
members of the same political party, and no appointment shall 
be made at any time which shall give to any party a member- 
ship in said commission of more than eight. No person owning 
stocks or bonds, or who is in any way pecuniarly interested 
therein, shall be eligible for appointment to the office of chief 
commissioner or commissioner ; nor shall the chief commissioner 
or any commissioner engage in any other than official business 
or employment. No vacancy or number of vacancies less than 
of a majority shall impair the right of the remaining commis- 
sioners to exercise the powers of the commission. It shall be 
the duty of the chief commissioner to preside at all meetings of 
the entire commission (hereinafter designated as meetings in 
bank), to divide and distribute the work of the commission 
among the departments herein provided for, to supervise and 
direct the business and affairs of the commission generally, in- 
cluding the employment and discharge of employees. Within 
thirty days after the taking effect of this Act said additional 
appointments shall be made by the President, and within ten 
days thereafter the chief commissioner, in addition to his other 
duties, shall constitute five departments of said commission, 
each of which shall have all the powers of the whole conirnis- 
sion, and its decisions shall be entered of record as the decision, 
order, or ruling, as the case may be, of the commission, subject 
to the right of any party to any proceeding to a rehearing upon 
satisfactory cause shown by verified petition to the commission 
in bank. Not less than three commissioners shall participate in 
any decision in a department: Provided, That where the chief 
commissioner joins in a decision as one of the requisite 
number the hearing or examination in a department may be 
had by two commissioners." 

Sec. 2. That section thirteen of said act to regulate com- 
merce approved February fourth, eighteen hundred and eighty- 
seven, is hereby amended by adding thereto and at the end of 
said section thirteen the following: 

"The Interstate Commerce Commission shall have, and is 
hereby, given power and authority to revise and reconstruct 
schedules of rates, fares, and charges previously established and 
put in force by carriers in interstate commerce, or such as shall 
be hereafter established and put in force by the commission, 
and to formulate and put in force by the commission, and to 
formulate and put in force entire new schedules of rates, fares, 
and charges in lieu of those previously formulated and put in 
force by the carriers themselves or by the commission, either 

362 



APPENDICES 



when an increase of rates, fares, or charge is proposed or at- 
tempted by any carrier or by several carriers acting conjointly 
or contemporaneously, or at any time, upon the motion or 
initiative of the commission, or upon a procedure instituted by 
any party authorized and empowered by this Act to present a 
complaint against a carrier concerning a rate, fare, charge, or 
practice. And whenever the commission shall deem it necessary 
or shall find it convenient, in order to prevent discrimination in 
rates between commodities, kinds or descriptions of traffic, per- 
sons, or localities, or to equitably equalize rates, or properly 
and fairly formulate and put in force new schedules, it may in- 
crease as well as reduce a rate or rates, fare or fares, charge or 
charges, and may rearrange and newly create classifications, as 
well as transfer commodities from one class to another, or 
may transfer a commodity from a special class, where a special 
rate is charged, to an ordinary established class, or from the lat- 
ter to the former. 

"At any hearing or examination, whether in departments or 
in bank, rules of evidence shall, as far as is possible, be observed 
and applied as in the courts of the United States, 
except where changed or modified by the provision of 
Section fifteen of the Act to Regulate Commerce, as 
amended in 191,0 relating to the burden of proof ; and in de- 
termining the reasonable and just rates of service by corpora- 
tions subject to the jurisdiction of the commission the test of 
reasonableness and justness shall be in conformity to the re- 
quirements declared and so established by the Supreme Court 
of the United States in Covington and Lexington Turnpike 
Company against Sanford (One hundred and sixty-four United 
States, five hundred and seventy-eight). 

"And in order that said commission may have constantly be- 
fore it for emergencies, available to all interested parties, the 
means for satisfying an important test of just and reasonable 
rates for the transportation by rail of persons and property, it 
is hereby made the duty of the said commission, and it is here- 
by required, to proceed forthwith to the appraisement and valu- 
ation of the properties of at least ten of the leading and domi- 
nating railroad systems engaged in whole or in part in the car- 
riage of passengers and freight in interstate and foreign com- 
merce, or in interstate commerce, the commission to make the 
valuation according to its best judgment, with a view to most 
effectually accomplish said object. The word 'system' as here 
used means any lawful business organization of lines of trans- 
portation, whether all rail or partly rail and partly water route, 
under one management and control, whatever the form, whether 
by lease, stock ownership, or otherwise, where the management, 
operation, or rates of a subsidiary railroad company or connect- 
ing company engaged in transportation by rail or water is right- 
fully controlled by another. The valuation in any such case 
shall be only of the property used in transportation. In making 
such valuation the commission shall reject any value or claim 

3^3 



APPENDICES 



of value for franchises or good-will, but shall include all acces- 
sions of value derivable from improvement of the vicinage, 
whether such value resulted from the construction of railroads 
to the place or places of location or otherwise. In the case of 
terminals and stations the land and improvements thereon shall 
be separately ascertained. The presence in the town or city of 
the particular railway and the additional value given to land 
by its presence and by general transportation facilities shall be 
considered and such value given to the land as if it were avail- 
able for residential or business uses. The original cost of struc- 
tures after a deduction for depreciation shall constitute their 
valuation. Rights of way, as land, shall be valued according to 
the use to which they might be devoted if not occupied for rail- 
road purposes, and such proportional value may be given to 
narrow strips of land so occupied as if they were parts of 
bodies of land large enough for convenient use in the prevailing 
industry of the vicinage. 

"In addition to the foregoing the commission may adopt arid 
adhere to other convenient rules not in conflict with law for 
such appraisement or valuation. And for the purposes of such 
appraisement or valuation the commission is hereby authorized 
to employ engineers and other assistants upon such terms as to 
it shall appear just and reasonable, arid to provide all such other 
facilities, agents, or instrumentalities and incur such expendi- 
tures therefor as may be necessary, and to pay iot services and 
the cost of such facilities and such expenses out of any funds 
at its disposal or which may be appropriated by law specially 
for the purpose." 

Sec. 3. Section twenty-four of the said act to regulate com- 
merce (as amended) and all acts and parts of acts in conflict 
with the provisions of this act are hereby repealed. 

Sec. 4. This act shall take effect and be in force from and 
after its passage. 



364 



GENERAL INDEX 

(The references are to pages.) 

Amendments by Congress to Interstate Commerce Act, 

in 1910 and 1912 66-130 

Anti-trust act: 

Combination imposing restraint constitutes viola- 
tion of 141-143 

How operation of thwarted by incorporation laws 

of state 145-147 

Details in proper application of for judiciary 175 

Not violated by contract for entire product 180 

An abridgement of freedom to prevent abuses of 

freedom 188 

Pertains solely to personal rights 188, 189 

Meaning and purpose of entirely misconceived by 

proponents of Lenroot Bill 204, 205 

Fully warrants courts in nullifying stock and bond 

issues 319-321 

Enforcement of attended by delay and waste. .. .332-334 
Appendix A: 

Statement of merits of, as primary election bill.. 34-39 

Form for model primary election law 352-361 

Appendix B: 

Embodies only practicable and fair scheme of val- 
uation and regulation 88-90, 93 

Form for bill to amend the Interstate Commerce 

Act 361-364 

Ballot laws, objections to Australian 17-19 

Ballots: 

Direct primaries, mistakes in voting 14 

Impracticable schemes pertaining to 16, 17 

Banking privileges, usurpation of, by railroads 102-104 

Bristow Commission Bill: 

Discussion of provisions of 292-313 

Would confer Legislative and Judicial powers upon 

executive agency 292-313 

365 



GENERAL INDEX 

Enactment of would necessitate a price standard . . 295 
Would confer Judicial powers of broad scope .... 297-304 
Would have commission take charge of business of 

violators 311, 312 

Attempts to confer powers fit only to be exercised 

by a Grand Jury 306, 307 

Imposes upon executive department duties so vast 

that performance impossible, 307, 308 

Seeks to liquidate through commission affairs of 

insolvents '. 308-310 

Burden of Proof: 

Provision shifting, importance of 66, 67 

Advantages of amendment shifting, largely offset 

by subsequent legislation 68, 118-124, 338-340 

Capitalization, differences in, render plan of valuation 

measure abortive 86-88 

Clark, Hon. Champ (Speaker of H. R.), participation of, 

in burden of proof amendment 67 

Commerce Court, enactment of provisions creating, re- 
sult of compromise 68 

Constant Profit and Fair Return, doctrine of Govern- 
ment guarantee of, now firmly established 78-84 

Constitution of United States: 

Gives no recognition to political parties 32 

Amendment of, necessary 129, 130 

Competition: 

Regulation of, an idle dream 184, 185 

Idle speculations concerning restraint of 185, 187 

Consumers and Producers, advantages of bringing 

nearer together 183, 184 

"Corporation Lawyers," activities of, in control of poli- 
tics and legislation 2, 3, 4 

Corporations, Public Service, important influence of, 

in politics 3 

Cummins, Hon. Albert B, burden of proof amendment 

offered by, and enacted 66, 67 

Curse of Party Rule: 

Exemplified in bi-partisan alliances between oppo- 
site sides in Congress 343, 344 

Extends through all branches of Government 334-337 

366 



GENERAL INDEX 

Delegates to party conventions, responsibilities felt 

by, when properly elected 14 

Departmental Graft and Waste, remissness of Congress 

wherein 341-343 

Dividends of railroads, large and persistent increase of... 53, 54 
Earnings, vast and disproportionate increase of, under 

present rates 97-101 

Enrollment, advantages given by, to party machines . . 23-25 

Exclusive Contracts, arguments for and against 181-183 

Expenditures, campaign, futility of attempting to limit 15 
Franchises of railroads, mere muniments of monopolis- 
tic powers 51-53 

Hepburn Act: 

Senseless agitation preceding passage of 40,41 

Advantages of, to railroads, and misconceptions 

concerning 40, 41 

As makeshift legislation to fool the people 40-45 

Nullification of effect of, by "broad judicial review". 47, 48 
Contains provisions to enrich and perpetuate rail- 
road monopolies 51-53 

Nullified by "broad judicial review" provision 63, 64 

House of Representatives, smooth passage through, of 

Hepburn bill 45, 46 

Industrial or Trade Commission: 

Cannot exercise other than well defined powers ,. 293, 294 
Creation of, with limited powers might do much 

good 324,325 

Interstate Commerce: 

Constitution limits definition, consequently Con- 

gresional power 144, 145 

Definition and meaning of, ignored by Lenroot 

bill 201, 202 

Perversion of power to regulate in Smith-Williams 

bill 276, 277 

Right to engage in, constitutional 277-283 

Interstate Commerce Commission: 

Interested support by, of Hepburn Act 44, 50 

Fallacious economic views of 71, 72 

Adoption by, of railroad viewpoint 72, 73 

Erroneous view of, on question of constitutional 
law 84, 85 

367 



GENERAL INDEX 

Should have enlarged powers given by appended 

bill .88-90, 93 

Heresies of, stupenduously vicious 93 

Increase of membership of, provided for in append- 
ed bill 94 

Investigation: 

As a cure-all, end-all and subterfuge 131, 132 

Merely furnishes a means of free advertising for 

participants 132 

La Follette, Hon. R. M., futile eflforts of, to amend Hep- 
burn bill '. 47 

Lamar, Hon. W. B., criticisms by, of Hepburn bill 44, 45 

Lenroot, Hon. I. L., particpation of, in burden of proof 

amendment 67 

Lenroot Bill: 

Objected to as impracticable and unconstitutionall75, 176 

Provisions of, criticized 175-252 

Criticisms of sections 9, 10 and 11 of 191-214 

Constitutional objections to 206-242 

Lobbying, vicious and otherwise, many forms of ... .346-348 
Madden, Hon. Martin B., participation of, in burden of 

proof amendment ; 67 

Minnesota Rate Cases, views of court in, may necessi- 
tate constitutional amendment 338-341 

Monopoly: 

A term of varied significance 133, 134 

In form of trust exterminated even under State 

laws 137 

Important form of, maintainable despite Anti-trust 

Act 138-141 

Vague gerieral views of meaning of 176-178 

Instance of, permissibe under Anti-trust Act.... 179, 180 
Protected by patent, find sanction in Constitution . . 189 
Monorailroad, triangular electric, may revolutionize 

Railway construction 106, 107 

Newspapers: 

Are strong on nonessentials and details, but weak 

on vital questions 6, 7 

Comment by, in 1906, 1907 64, 65 

Nominations: 

How made under present party system. ...-.«... ..2, 3, 4 

36S 



GENERAL INDEX 

Plurality at primaries, objections to 20, 21 

Oldfield Bill, criticisms of 168-174 

Parties: 

Rule by, cause for general dissatisfaction 1 

Institutional in all republics 6 

Not factors in original schemes of Government.. 7, 8 

Reprehensible State action in promotion of 22-24 

Control of, by State, and not promotion needed 26, 27 

Industrial forces most steadfast adherents to 28, 29 

Organization and maintenance of, necessary and 

inevitable 28-30 

Exposure of delusions and falacies concerning 

legal status of 31-33 

Should be treated as mere leaderships and follow- 

ings 33 

Party Candidates, advantages enjoyed by, over inde- 
pendents 25, 26 

Party Conventiotis: * 

Proper functions and office of 8,9 

Indispensable to permanency of party organiation . . 7-9 
May be trusted when delegates properly elected 

thereto 14 

Party Leaders, timid and cowardly, become mere fol- 
lowers 7 

Patent Laws lie in a field differing from that of Anti- 
trust Legislation 171 

Patents: 

Are monopolies protected by the Constitution .. 188, 189 
Right to use, may conflict with Anti-trust Act.. 189, 190 
Rights of owners of, destroyed by provisions of 

Lenroot Bill 205 

Patronage : 

Favoritism in, bestowal of.... 1 

Slight regard to party interests in bestowing 1 

Interests of public rarely considered in dispensing. 1 

Platforms, how disregarded after election 4, 5 

Power of Congress: 

Discussion of subject of 314-331 

Over state — created corporations ample 314,315 

Can impose reasonable conditions on interstate 

shipm<bnts 315 

369 



GENERAL INDEX 

Does not extend indirect restraints 322,323 

Should be exercised to end railroad combinations. 325-329 

Does not extend to stockholding affairs 329-331 

Presumptions, conclusive, constitutional objections to. 237, 238 
Primaries: 

Direct, are impracticable in most States 9-14 

Direct, great expense, inconveniences and hard- 
ships of 13, 14 

In party control, essential to good government.. 21, 22 
Primary Election Laws: 

Generally discussed 20-39 

Effective, fair and constitutional, essentials of 20-39 

Provisions in, for direct primaries unsafe and des- 
tructive to parties 20-39 

Existing, were framed by bosses and lawyers rep- 
resenting special interests 22, 23 

Form of bill for, appended 39, 352-361 

Railroad business, rather than individual railroads, 

proper subject for public concern 91, 92 

Railroad Combinations, powers of Congress should be 

exerted to terminate 325-329 

Railroad Construction: 

Reckless and unnecessary, as basis for demand for 

higher rates 104-106 

Soon to be revolutionized by invention 106, 107 

Railroad Credit, maintenance of no proper concern or 

rate regulating power 1 14-117 

Railroad Managers: 

Make exhorbitant claims because of managerial 

ability 112-114 

Have in view extensions of monopoly in increase 

of rates 117, 118 

Railroads, promulgation by, of false doctrines 94-98 

Rates: 

Unreasonable, law provides no effective remedy 

to prevent 59-62 

Too high, origin of popular demand for legislation. 63 
Stupenduous tribute and extortion signified by 

existing 109, 110 

Imperialistic but not paternalistic function of fixing 111 
Too high in this country and must be reduced 128, 129 

370 



GENERAL INDEX 

Rebates and Dscriminations: 

Ending, about the only merit of Hepburn Act.... 48, 49 
Abolition of, of benefit principally to the railroads. 55, 56 

Not prevented by Hepburn Act 56-58 

Receiverships and Partitions as provided for in Bris- 

tow Bill, constitutional objections to 240-242 

Restraints and Monopolies, general principles applica- 
ble herein 131-147 

Smith-Williams Bill: 

Discussion of provisions of 253-291 

Incorporates conditions to engaging in Interstate 

Commerce 256, 257 

Misconception by authors of, with reference to 

proper definition of Interstate Commerce. .. .261, 262 
Disregards internal affairs of private corporations. 262-264 
Makes an impossible classification for purposes of 

legislation 264-269 

Impossible attempt in to regulate internal corpo- 
rate affairs 269-274 

Does not differentiate between Interstate and In- 
trastate Commerce 270-274 

Would require impossible changes in State Con- 
stitutions and laws 273-277 

Is an attempted perversion of the power to regu- 
late commerce 276, 277 

Attempts unconstitutionally to exclude from right 

to engage in interstate trade 277-283 

Is a mere scheme of indirect Federal incorpora- 
tion 284-288 

Would drive nearly all persons and corporations 

out of business 288-291 

Would overlap Anti-trust Act, causing intermin- 
able confession as well as prolonged uncer- 
tainty 290, 291 

Stock and Bond Issues, in violation of Anti-trust Act, 

invalidity of 315-320 

Stockholders, interest of, not entitled to special con- 
sideration 128, 129 

Stocks and Stockholding are matters beyond power of 

Congress over commerce 269, 270 

371 



GENERAL INDEX 

Relations and affairs of, beyond Congressional 

power ^ 329-331 

Supreme Court: 

Change in views of, as to what constitutes con- 
fiscatory rates 75-81 

Responsibility of, for establishing doctrine of "con- 
stant profit" 78-84 

Has shown marked tendency to limit powers of 

commissions 304, 305 

Acted beyond its jurisdiction Standard Oil and 

Tobacco Company cases 319-321 

Tariff not a legitimate party issue, but a football of pol- 
itics 7, 8 

Traffic and price agreements favored by provisions 

of Lenroot bill 195-200, 212-220 

Transportation, importance of, not sufficiently appre- 
ciated 74, 75 

"Trusts," a borrowed term of slight present signifi- 
cance 134, 135 

Valuation Act: 

Criticism of provisions in 68, 118-124, 338-340 

Official action and expenditures under, useless and 

wasteful 70 

Should not be allowed to stand in present form.. 108, 109 

Vicious provisions embodied in 118-124 

Prima facie evidence provision in, of vastly evil 

import 120-124 

Particular provisions of, criticized 124-127 

Voters: 

Deceived during carnpaigns at^d disappointed after- 
wards 4, 5 

Would not freely participate in direct primaries 

where required to enroll 13 

Intelligence of, underrated by politicians 19 

Should be protected in secrecy at primary elec- 
tions 34 



372 










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